n-05-58.pdf

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Part III – Administrative, Procedural and Miscellaneous

§ 457(b) Plans and Federal Credit Unions

Notice 2005-58

I. PURPOSE

This notice addresses certain income tax issues with respect to
nonqualified deferred compensation plans maintained by federal credit unions,
including whether a federal credit union can maintain an eligible nonqualified
deferred compensation plan described in § 457(b) of the Internal Revenue Code
(the “Code”).
The provisions of this notice are applicable to any nonqualified deferred
compensation plan maintained by a federal credit union described in § 501(c)(1)
until publication of guidance regarding the definition of a “governmental plan”
under § 414(d).

II. BACKGROUND
Section 457 provides rules regarding the taxation of a nonqualified
deferred compensation plan of an eligible employer. For this purpose, the term
“eligible employer” is defined in § 457(e)(1)(A) as a state, a political subdivision
of a state, and any agency or instrumentality of a state or political subdivision of a
state. In addition, § 457(e)(1)(B) includes as an eligible employer “any other
organization (other than a governmental unit
) exempt from tax under” subtitle A

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of the Internal Revenue Code. [Emphasis added.] Section 1.457-2(e) of the
Income Tax Regulations provides that the term “eligible employer” does not
include “the federal government or any agency or instrumentality thereof.” Thus,
agencies or instrumentalities of the federal government are not eligible
employers described in § 457(e)(1)(A) or (B).
In 2004, the IRS issued a private letter ruling (LTR 200430013) to a
federal credit union indicating that because federal credit unions chartered under
the Federal Credit Union Act are not eligible employers under § 457(e)(1), the
nonqualified deferred compensation plan to be established by the requesting
entity is not an eligible plan under § 457(b). This private letter ruling was based
on prior published authority indicating that federal credit unions chartered under
the Federal Credit Union Act are federal instrumentalities for purposes of
§ 501(c)(1). Rev. Rul. 69-283, 1969-1 C.B. 156. See also
Rev. Rul. 55-133,
1955-1 C.B. 138 (superseded by
Rev. Rul. 60-169) (“Federal credit unions are
recognized as instrumentalities of the United States within the meaning of section
501(c)(1) of the Internal Revenue Code”); Rev. Rul. 60-169, 1960-1 C.B. 621
(obsoleted on other grounds by
Rev. Rul. 89-94, 1989-2 C.B. 233) (“Federal
credit unions organized and operated in accordance with the Federal Credit
Union Act are recognized as instrumentalities of the United Stated within the
meaning of section 501(c)(1) of the Code.”)
Section 6110(k)(3) provides that a private letter ruling applies only to the
taxpayer who requested it and is not to be cited or treated as precedent with
respect to any other taxpayer. Therefore, no federal credit union, other than the

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credit union to whom the private letter ruling was issued, is entitled to rely on the
2004 private letter ruling with respect to whether § 457 applies to its nonqualified
deferred compensation plan. In addition, the 2004 private letter ruling did not
address the application of other provisions of the Internal Revenue Code to a
nonqualified deferred compensation plan maintained by a federal credit union.

III. CURRENT TREATMENT OF FEDERAL CREDIT UNION 457 PLANS
Treasury and the IRS intend to publish guidance regarding the meaning of
the term “governmental plan” under § 414(d). Treasury and the IRS have
determined that, until § 414(d) guidance is published, a plan in effect on [INSERT
DATE THIS NOTICE IS PUBLISHED IN THE INTERNAL REVENUE BULLETIN]
that is maintained by a federal credit union and is intended to be an eligible
nonqualified deferred compensation plan of a non-governmental tax-exempt
entity under § 457(b) will not fail to be a § 457(b) plan solely because the
employer establishing and maintaining it is a federal credit union described in
§ 501(c)(1), provided that the federal credit union has consistently claimed the
status of a non-governmental tax-exempt organization for all employee benefit
plan purposes, including § 414(d) and the parallel definition of a “governmental
plan” in section 3(32) of the Employee Retirement Income Security Act of 1974
(ERISA). In addition, because eligible § 457(b) plans are not subject to § 409A
of the Code (providing new requirements for most nonqualified deferred
compensation plans), if the federal credit union treats its nonqualified deferred
compensation plan as an eligible § 457(b) plan pursuant to this notice, that plan

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will not be subject to the requirements of § 409A. If future § 414(d) guidance
contains rules providing that a federal credit union is not an eligible employer
under § 457, the guidance will include a reasonable transition period during
which any federal credit union that has consistently claimed the status of a non-
governmental tax-exempt organization will be permitted to revise its
arrangements in order to avoid possible adverse tax consequences for
participants in its nonqualified deferred compensation plan that was intended to
constitute an eligible plan under § 457(b).
Pending further guidance, a federal credit union that has consistently
claimed the status of a non-governmental tax-exempt organization for all
employee benefit plan purposes may treat § 457(f) as applying to any
nonqualified plan it maintains (other than an eligible § 457(b) plan) that provides
for a deferral of compensation. Note that § 409A applies to arrangements to
which § 457(f) applies. See
Q&A-6 of Notice 2005-1, 2005-2 I.R.B. 274, 279.

DRAFTING INFORMATION
The principal author of this notice is John A. Tolleris of the Office of
Division Counsel/Associate Chief Counsel (Tax Exempt & Government Entities).
For further information regarding this notice contact John A. Tolleris at (202) 622-
6060 (not a toll-free call).