This week the IRS published draft proposed rules defining governments and government related entities for qualified plan purposes. 76 FR 69172. Resolving a six-year controversy, the draft rules also state that for purposes of non-qualified deferred compensation plans, federal credit unions are tax-exempt non-government entities, not federal instrumentalities. The result is that federal credit unions can sponsor 457(b) plans and 457(f) plans as any other tax-exempt organization. If the final regulations look like the proposed rules, few, if any, changes to current plans will be required. 457(b) plans designed to meet the 409A requirements could remove the 409A restrictions (such as annual deferral elections and five-year postponements for changing the time and form of benefit payments). Even now, new plans can be installed with greater confidence in the 457(b)/457(f) approach.
The IRS bumped the 2012 elective deferral limit for 457(b) plans from $16,500 to $17,000, along with a number of inflation adjustments. Highlights include:
- The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457(b) plans, and the federal government’s Thrift Savings Plan is increased from $16,500 to $17,000.
- The catch-up contribution limit for those aged 50 and over remains unchanged at $5,500.
- The limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $195,000 to $200,000.
- The limitation for defined contribution plans under Section 415(c)(1)(A) is increased from $49,000 to $50,000.
- The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) is increased from $110,000 to $115,000.
- The annual compensation limit under Section 401(a)(17) is increased from $245,000 to $250,000.