New developments affecting governmental plans

Article Abstract:

Administrators of governmental pension plans and deferred compensation plans may not be aware that most qualification requirements for private plans are also applicable to public employee plans. The contribution and benefit limits of IRC section 415 may be implicated by longterm public employees who accrue benefits in excess of compensation. The nondiscrimination provisions must be reviewed as well, and the size of the pool of employees to be tested raises challenging questions. IRC section 403(b) plans and nonqualified deferred compensation plans may also impact contribution limits.

Compensation and benefits, Qualified benefit plans, Public employees, Government employees

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IRS issues long-awaited deferred compensation employment tax rules

Article Abstract:

Proposed regulations issued by the IRS in Jan 1996 clarify how to treat deferred compensation plans for FUTA and FICA purposes under IRC section 3121(v)(2). Deferred compensation is taxable when the services are performed or when the funds are no longer subject to a risk of forfeiture, whichever is later. The regulations draw a distinction between account balance plans and nonaccount balance plans in determining the present value of deferred compensation. The regulations also address severance plans, withholding timing and when the amounts are reasonably ascertainable.

United States, Laws, regulations and rules, Payroll tax

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Treasury releases report to Congress on tax treatment of deferred compensation under s. 457

Article Abstract:

The Department of the Treasury, in a report required by the Technical and Miscellaneous Revenue Act of 1988, has addressed the issue of the tax treatment of deferred compensation. The report concludes that Section 457 provides appropriate restrictions to prevent tax-exempt organizations, state governments and local governments from providing excessive deferred compensation. The report suggests that Section 457 may be unnecessary and that it may create a competitive disadvantage for tax-exempt employers.

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