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July 21, 2005 at 08:00 PM
Regulators are telling federal credit unions not to panic about the status of their 457 nonqualified deferred compensation plans.[@@]
The Internal Revenue Service has released soothing words for credit union managers in IRS Notice 2005-58, which advises the managers to take a 2004 private letter ruling on the issue with a grain of salt.
The IRS official who wrote the letter ruled that federal credit unions cannot offer 457 plans because at least 1 section of federal law defines federal credit unions as being “federal instrumentalities.”
Section 457 of the Internal Revenue Code lets state governments, municipal governments and tax-exempt employers that are not government agencies offer 457 nonqualified deferred compensation plans, but Section 1.457-2(e) of the income tax regulations states that the term “eligible employer” does not include “the federal government or any agency or instrumentality thereof,” John Tolleris, an IRS official, writes in Notice 2005-58, which appears today in the Federal Register.
