IRS: Unions Can Run 457 Plans

June 3, 2004 (PLANSPONSOR.com) - Labor unions may offer and administer an eligible 457 retirement savings plan maintained by state and local government employers for their unionized workforce, the Internal Revenue Service (IRS) has ruled.

In Revenue Ruling 2004-57, 2004-24 I.R.B., IRS officials said, a plan does not necessarily fail to be an eligible Code Sec. 457 governmental plan solely because a labor union administers it and a state offers it only to employees who are union members, CCH reported.

According to the IRS guidance, a 457 plan covered by the ruling would be offered only to members of a collective bargaining unit represented by the union, who have also been offered another eligible governmental 457 plan. Union members who would be eligible to participate in the union-offered 457 plan are employees of governmental employers that would adopt the union’s 457 plan, and the union participants would have the option of electing to have their governmental employers make contributions on their behalf out of their pay, according to the hypothetical situation described by the IRS.

The union’s involvement in administering the plan would be limited to the involvement normally associated with a third party administrator who invests annual deferrals and administers the plan provisions. If a governmental employer adopts a plan reflecting the employer as having established and maintained the plan, the IRS said it may be considered an eligible governmental 457 plan even if it is created, offered, and administered by a union.

The IRS has provided a transition rule for plans that do not satisfy the requirements discussed above solely because they are established and maintained by a labor organization instead of by an eligible governmental employer.

The latest 457 plan guidance is at  http://www.irs.gov/pub/irs-drop/rr-04-57.pdf .

General information about the IRS treatment of 457 plans is at http://www.irs.gov/retirement/article/0,,id=111442,00.html .

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