IRS written determination 201546012

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

Internal Revenue Service
Number: 201546012
Release Date: 11/13/2015
Index Number: 415.12-00
TY:
Calendar year
Legend
System A
=
Board B
=
Trust 0
=
Excess Plans =
Department of the Treasury
Washington, DC 20224
Third Party Communication: None
Date of Communication: Not Applicable
Person To Contact:
, ID No.
Telephone Number:
Refer Reply To:
CC:TEGE:EB:QP4
PLR-T-102477-15
Date:
June 16, 2015

PLR-T-102477-15
2
StateN =
Statute S
=
Dear
This letter is in response to your ruling request, submitted by your authorized
representative, dated November 8, 2012, as supplemented by correspondence dated
July
9, 2014, April17, 2015, May 7, 2015, May 11, 2015, and May 22, 2015 with respect
to the applicability
of section 415(m) of the Internal Revenue Code ("Code") to the
excess benefit plans ("Excess Plans") and the related federal tax consequences.
The following facts and representations have been submitted under penalties
of perjury
in support
of your request:
System A is a statewide system established under StatuteS. Sponsored by
StateN,
System A administers retirement plans and other funds that provide medical, death,
disability and retirement benefits on behalf
of active and former state employees,
teachers, police, firefighters, judges, and volunteer firefighters.
System A has established qualified plans (Qualified Plans) which were adopted by
employers for benefit
of eligible employees and are administered by Board B and
System
A. Your authorized representatives have represented that the Qualified Plans
are defined benefit plans and governmental plans as described in section 414(d)
of the
Code and are intended to meet the qualification requirements
of section 401(a). The
funding vehicle for the Qualified Plans is a master trust ("Retirement Fund"), which
includes the trust funds of the Qualified Plans adopted by an employer.
Each
of the employers has established an excess benefit plan. The Excess Plans are
intended to be
"qualified excess benefit arrangements" within the meaning
of section
415(m)(3)
of the Code, and will operate in accordance with that section. Under the
Excess Plans, a participant who is receiving a retirement benefit from a Qualified Plan
("Retiree"), or an individual who is receiving a retirement allowance or other benefit
under a Qualified Plan ("Beneficiary"), will be paid the amount
of retirement income that
would otherwise have been payable to such Retiree or Beneficiary by System A, but
could not be paid from the Qualified Plan because
of the limitations of section 415(b) of
the Code. The retirement income benefits provided under the Excess Plans are
hereinafter referred to as "Excess Benefits."

PLR-T-102477-15
3
Employer contributions under the Excess Plans are held in Trust 0. If and only to the
extent the Employer makes sufficient contributions to Trust
0, Board B will compute and
pay the Excess Benefits under the Excess Plans in the same form, at the same time,
and to the same persons as such benefits would have otherwise been paid as a
monthly pension under the Qualified Plan, except for the limitations
of section 415 of the
Code. Under the Qualified Plans, and therefore under the Excess Plans, retirement
benefits are
only payable to Retirees and Beneficiaries upon the occurrence
of certain
events permitting a distribution under a Qualified Plan (i.e., retirement, death, disability,
or other termination
of employment).
Participants
in the Excess Plans may elect a form of benefit under one or more of the
Qualified Plans, which dictates the form
of payment under the Excess Plans. However,
under the terms
of the Excess Plans, participants are not provided an election to defer
compensation under the
plan, either directly or indirectly. The Excess Plans also
provides that a participant's interests under the Excess Plans prior to distribution may
not be subject to execution, attachment,
or garnishment or otherwise subject to any
other process whatsoever.
Trust
0, separate and apart from the Retirement Fund, has been established solely for
the purpose
of holding employer contributions intended to pay Excess Benefits under
the Excess Plans. Your authorized representative has represented that the Trust
0 is a
grantor trust under state law and for federal income tax purposes. Board B is the
grantor
of Trust 0, within the meaning of sections 671 through 679 of the Code.
Accordingly, the assets
of Trust 0, which are held for each employer under the Excess
Plans, are subject to the claims
of that employer's general creditors under federal and
state
law in the event
of the insolvency of the employer.
Trust
0 will be funded on a "pay-as-you-go" basis and begin paying benefits as
necessary to ensure
compliance with the applicable limitations of section 415 of the
Code. All assets held
in Trust 0 and all property rights and beneficial interests acquired
through the use
of the Excess Plans assets will be held separate and apart from other
funds
of the employers. Under the terms of the Excess Plans, participants in the
Excess Plans receive no property rights, legal
or beneficial, in any of the assets held in
Trust 0. The provisions of the Excess Plans explicitly provide that contributions to Trust
0 will be held separate and apart from the funds comprising the Retirement Fund and
will not be commingled with assets
of the Retirement Fund, and must be accounted for
separately. Board B members act as trustees with respect to Trust
0.
Board B will determine the amount necessary to pay the Excess Benefit under the
Excess Plans for each calendar plan year ("Plan Year''). The required contribution for
each
Employer will be the aggregate
of the excess benefits payable under the Excess
Plans to all Retirees and Beneficiaries
of that Employer for the Plan Year and an
amount determined by Board B to be a necessary and reasonable expense
of
administering the Excess Plans and Trust 0. No employee contributions are permitted
under the Excess Plans.

PLR-T-102477-15
4
Contributions to the Excess Plans will not be calculated in a manner designed to pay
future Excess Benefits. Any contributions not used to pay the Excess Benefit for a
current Plan Year, together with any income accruing to Trust
0, will be used, as
determined by Board B, to pay the administrative expenses of the Excess Plans and
Trust
0 for the Plan Year. However, any contributions not used to pay Excess Benefits
for the current Plan Year that remain after paying administrative expenses of the Excess
Plans and Trust
0 for the Plan Year will be used to fund administrative expenses or
Excess Benefits in future Plan Years.
All Retirees and Beneficiaries will automatically participate in the Excess Plans for a
Plan Year if their retirement benefits from the Qualified Plan for the Plan Year would
exceed the limitations imposed by section 415(b)
of the Code. The administrator will
determine for each Plan Year which Retirees and Beneficiaries will participate
in the
Excess
Plans
(such Retirees and Beneficiaries who are
entitled to a benefit under the
Excess
Plans are hereinafter referred to as a "Participants"). Participation in the Excess
Plans ends for any Plan Year in which the retirement
benefit
of a Participant is not
limited by section 415(b) and when all benefit obligations under the Excess Plans to the
Participant for that
Plan Year have been satisfied. Neither the trustees
of Trust 0 nor
System A is responsible for paying Excess Benefits other than from contributions from
the Employers.
Based on the above facts and representations, you request the following rulings:
1. That the Excess Plans establishes a qualified governmental excess benefit
arrangement within the meaning
of section 415(m) of the Code;
2. That the benefits payable under the Excess Plans will be includible in gross
income for the
taxable year or years in which such benefits are paid or
otherwise made available to a Participant or a Participant's Beneficiary in
accordance with the terms
of the Excess Plans; and
3. That income accruing to the Excess Plans is exempt from federal income tax
under sections 115 and 415(m)(1)
of the Code as income derived from the
exercise
of an essential governmental function.
Section 415(b)
of the Code and section 1.415(b)-1 of the Income Tax Regulations
("regulations")
set forth the limitations on annual benefits for participants in defined
benefit plans.
Section 1.415(b)-1 (b)(1 )(ii)
of the regulations provides in part that the annual benefit
does not include the annual benefit attributable to either employee contributions
or
rollover contributions (as described in sections 401 (a)(31 ), 402(c)(1 ), 403(a)(4},
403(b)(8), 408(d)(3), and 457(e)(16))
of the Code, determined pursuant to the rules of

PLR-T-102477-15
5
paragraph (b)(2)
of this section. This section further states that the treatment of
transferred benefits is determined under the rules of paragraph (b)(3) of this section.
Section 1.415(b)-1 (b)(3)(ii)
of the regulations addresses elective transfer of distributable
benefits and states in part that the annual benefit provided by the transferee defined
benefit plan does not include the annual benefit attributable to the amount transferred.
Section 415(m)(1)
of the Code provides that, in determining whether a governmental
plan (as defined in section 414(d)) meets the benefit limitations
of section 415, benefits
provided under a qualified governmental excess benefit arrangement shall not be taken
into account. Section 415(m)(1) also states that income accruing to a governmental
plan (or to a trust that is maintained solely for the purpose
of providing benefits under a
qualified governmental excess benefit arrangement) shall constitute income derived
from the exercise
of an essential governmental function upon which such governmental
plan (or trust) shall be exempt from tax under section 115.
Section 415(m)(2)
of the Code describes the tax treatment of benefits payable under a
qualified governmental excess benefit arrangement. Under section 415(m)(2), the
taxable year
or years for which amounts in respect of a qualified excess benefit
arrangement are includible in gross income by a participant, and the treatment
of such
amounts when so includible by the participant, are determined as if such qualified
governmental excess benefit arrangement were treated as a plan for the deferral
of
compensation that is maintained by a corporation not exempt from tax and which does
not meet the requirements for
qualification under section 401.
Section 415(m)(3) of the Code defines a qualified governmental excess benefit
arrangement as a portion of a governmental plan that meets the following three
requirements:
(A) Such portion is maintained solely for the purpose
of providing to participants in
the plan that part of each participant's annual benefit otherwise payable under
the terms
of the plan that exceeds the limitations on benefits imposed by section
415
of the Code;
(B) Under such portion, no election is provided at any time to the participant (directly
or indirectly) to defer compensation; and
(C)Such benefits
in excess of the limitations under section 415 of the Code are not
paid from a trust forming a part
of such governmental plan unless such trust is
maintained
solely
for the purpose of providing such benefits.
With respect to your first requested
ruling, according to the represented facts, the
Qualified Plans are governmental plans as described
in section 414( d) of the Code.
Furthermore, under the represented facts, the only purpose
of the Excess Plans is to
provide affected
employees
of State N and its qualifying governmental units who
participate in the Qualified Plans that portion
of their retirement benefits that would
otherwise be payable under the terms
of the Qualified Plans except for the limitations on

PLR-T-102477-15
6
benefits imposed by section 415(b ), as applicable to governmental plans. Participation
in The Excess
Plans
is limited to Participants receiving benefits under the Qualified
Plans
that would otherwise exceed the limits
of section 415.
Consequently, we find that the Excess Plans are portions
of the Qualified Plans, which
are governmental plans, and are maintained solely for the purpose
of providing
employees
of State N and its qualifying governmental units who participate in the
Qualified Plans that part
of their benefits otherwise payable under the terms of the
Qualified Plans that exceed the benefit limitations
of section 415 of the Code.
Accordingly, we conclude that the Excess Plans meets the requirements of section
415(m)(3)(A).
Your authorized representatives have stated that participation in the Excess Plans is
mandatory and automatic, and that there are no
employee contributions to the Excess
Plans. Your representatives also assert that, while participants may elect a form
of
benefit under the Qualified Plans, which dictates the form of payment under the Excess
Plans, no direct
or indirect election to defer compensation is provided to any participant
in the Excess Plans. Therefore, because
no direct or indirect election is provided at any
time to Participants to defer compensation under the Excess
Plans, the requirements
of
section 415(m)(3)(B) of the Code are met.
Section 415(m)(3)(C)
of the Code requires that the trust from which the excess benefits
of a qualified governmental excess benefit arrangement are paid not form a part of the
governmental plan that contains the excess benefit arrangement, unless such trust is
maintained solely for the purpose
of providing such benefits. Under the facts of this
case, the Excess
Plans will be funded on a "pay-as-you-go" basis. The represented
facts indicate that a separate trust fund, Trust
0, has been established for the
segregation
of the assets related to the Excess Plans. This trust fund has been
established solely for the purpose
of holding employer contributions intended to pay
excess benefits to affected participants in the Qualified Plans. The represented facts
further state that contributions to Trust
0 will consist only of the amounts required to pay
the excess benefits and related administrative expenses. The provisions
of the Excess
Plans explicitly provide that contributions to Trust
0 will be held separate and apart from
the funds comprising the Retirement Fund and will not be commingled with assets
of the
Retirement Fund, and must be accounted for separately. Based on these
representations and the provisions
of the Excess Plans, we have determined that the
requirements
of section 415(m)(3)(C) are met.
With respect to your first requested ruling, since the Excess Plans satisfy the
requirements
of sections 415(m)(3)(A), (B) and (C) of the Code, we conclude that the
Excess Plans are qualified governmental excess benefit arrangement within the
meaning of section 415(m).
Your second
ruling request asks whether the benefits payable under the Excess Plans
will be includible in gross income for the taxable year
or years in which such benefits

PLR-T-102477-15
7
are paid or otherwise made available to a Participant in accordance with the terms of
the Excess Plans. In response to your first ruling request, we concluded that the
Excess Plans meets the legal requirements
of Code section 415(m) of the Code and,
therefore, constitutes a
qualified governmental excess benefit arrangement.
Accordingly, under section 415(m)(2), the tax treatment
of benefits payable under the
Excess Plans
is determined as if the Excess Plans were plans for the deferral of
compensation that is maintained by a corporation not exempt from tax and that does not
meet the requirements for
qualification under section 401.
Section 83(a)
of the Code provides the rules for inclusion in gross income of the value
of property transferred to an employee as compensation for his or her services. The
excess
of the fair market value of property so transferred over the amount paid for the
property
is includible in the gross income of the person who performed services for the
first taxable year in which the property becomes transferable
or is not subject to a
substantial risk of forfeiture.
Section 1.83-3( e)
of the regulations defines "property" as including real and personal
property other than money
or an unfunded and unsecured promise to pay money or
property in the future. Under section 1.83-3(e), property also includes a beneficial
interest
in assets (including money) transferred or set aside from claims of the
transferor's creditors
in a trust or escrow account.
Section 402(b)
of the Code provides that contributions made by an employer to an
employee's trust that is not exempt from tax under section
501(a) are included in the
employee's gross income in accordance with section 83, except that the value
of the
employee's interest in the trust will be substituted for the fair market value
of the
property in applying section 83. Under section 1.402(b)-1 (a)(1)
of the regulations, an
employer's contributions to a nonexempt employee's trust are included as
compensation in the employee's gross income for the taxable year in which the
contribution is made, but
only to the extent the employee's interest in such contribution
is substantially vested, as defined in the regulations under section 83.
Section
451 (a) of the Code and section 1.451-1 (a) of the regulations provide that an
item
of gross income is includible in gross income for the taxable year in which actually
or constructively received by a taxpayer using the cash receipts and disbursements
method
of accounting. Under section 1.451-2(a), income is constructively received in
the taxable year during which it
is credited to a taxpayer's account, set apart, or
otherwise made available so that the taxpayer may draw on it at any time. However,
section 1 .451-2( a) further provides that income is not constructively received if the
taxpayer's control
of its receipt is subject to substantial limitations or restrictions.
The Service has also addressed the issue
of constructive receipt as it applies to
nonqualified plans
of deferred compensation, including excess benefit plans, in various
revenue rulings. In Rev. Rul. 60-31, Situations 1
-3, the Service held that a mere
promise to pay, not represented by notes or secured in any way, does not constitute

PLR-T-102477-15
8
receipt of income by a cash basis taxpayer. Rev. Rul. 60-31, 1960-1 C.B. 174, as
modified by Rev.
Rul. 64-279, 1964-2 C.B. 121, and Rev. Rul. 70-435, 1970-2 C.B. 100;
see also Rev. Rul. 69-650, 1969-2 C.B. 106, Rev. Rul. 69-649, 1969-2 C.B. 1 06; and
Rev. Rul. 71-419, 1971-2 C.B. 220.
Under the economic benefit doctrine, an employee is taxable in a year in which any
economic
or financial benefit is conferred upon the employee as compensation. Sproull
v. Commissioner, 16 T.C. 244 (1951), aff'd per curiam, 194 F.2d 541 (6th Cir. 1952). An
economic benefit is conferred on an employee when assets are unconditionally and
irrevocably paid into a fund
or trust to be used for the employee's sole benefit. In Rev.
Rul. 72-25, 1972-1 C.B. 127, and Rev. Rul. 68-99, 1968-1 C.B. 193, an employee does
not receive income as a result
of the employer's purchase of an insurance contract to
provide a source
of funds for deferred compensation because the insurance contract is
the employer's asset, subject to the claims of the employer's creditors.
Based on the foregoing, with respect to the second ruling request, we conclude that the
benefits payable under the Excess Plans will be includible in gross income for the
taxable year
or years in which such benefits are paid or otherwise made available to a
Participant or a Participant's Beneficiary in accordance with the terms of the Excess
Plans.
With respect to your third requested ruling, section 415(m)(1)
of the Code provides that
income accruing to a governmental plan (or to a trust that is maintained solely for the
purpose
of providing benefits under a qualified governmental excess benefit
arrangement), in respect
of a qualified governmental excess benefit arrangement, will
constitute income derived from the exercise of an essential governmental function upon
which such governmental plan (or trust) will be exempt from tax under section 115 of
the Code. We have determined, in connection with your first ruling request, that the
Excess Plans meets the legal requirements
of section 415(m) for qualified governmental
excess benefit arrangements. Therefore, under section 415(m)(1
), with respect to your
third requested ruling, we conclude that income accruing to the Excess Plans is exempt
from federal income tax under sections 115 and 415(m)(1) as income derived from the
exercise
of an essential government function.
The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty
of perjury statement executed
by an appropriate party. While this office has not verified any
of the material submitted
in support
of the request for rulings, it is subject to verification on examination.
This letter ruling is directed only to the taxpayer who requested
it. Section 611 O(k)(3) of ·
the Internal Revenue Code provides that it may not be used or cited as precedent.
Temporary
or final regulations pertaining to one or more of the issues addressed in this
letter ruling have not yet been adopted. Therefore, this letter ruling will be modified
or
revoked by the adoption of temporary or final regulations to the extent the regulations
are inconsistent with any conclusion in the letter ruling. See section 11.04
of Rev. Proc.

PLR-T-1 02477-15
9
2015-1, 2015-1 IRB 1, 59. If the taxpayer can demonstrate that the criteria in section
11.06, 60,
of Rev. Proc. 2015-1 are satisfied, the revocation or modification of a letter
ruling is
generally not applied retroactively.
This ruling
is based on the assumption that the Qualified Plans will be governmental
plans as described in section 414(d)
of the Code, and qualified under section 401(a),
and that the related Trust
0 will be exempt from tax under section 501 (a).
This ruling letter is based on the assumption that the after-tax contributions,
rollovers
and trustee-to-trustee transfers described above are excluded from the determination
of
annual benefit within the meaning of section 1.415(b)-1(b)(1 )(ii) of the regulations.
Except as expressly provided herein,
no opinion is expressed or implied concerning the
federal tax consequences
of any aspect of any transaction or item discussed or
referenced in this letter. If the Plan is significantly modified, this ruling will not
necessarily remain
applicable.
No opinion is expressed concerning the timing
of the inclusion in income of amounts
deferred under any deferred compensation plan other than the plan described above. In
addition, this ruling applies only to deferrals made after the date
of this ruling.
Pursuant to a power
of attorney on file with this office, a copy of this letter ruling is being
sent to your authorized representatives.
Enclosures:
cc:
Deleted copy
of ruling letter
Notice
of Intention to Disclose
Sincerely,
Cheryl
E. Press
Senior Counsel, Qualified Plans
Branch 4 (Employee Benefits)
(Tax Exempt Government Entities)