INTERNAL REVENUE SERVICE Index No. 457.01-00 457.05-00 457.12-02 Number: 199932045 Release Date: 8/13/99

CC:EBEO:1 - PLR-120966-98 Date: May 24, 1998 Entity E = Dear: This responds to your letter of October 1998 and subsequent correspondence, on behalf of Entity E, requesting a ruling concerning the proposed restated deferred compensation plan (the "Plan") which E intends to be an eligible deferred compensation plan under section 457(b) of the Internal Revenue Code of 1986, as amended under sections 1447 and 1448 of the Small Business Job Protection Act of 1996. E is represented to be a local political subdivision described in section 457(e)(1)(A). Under the Plan an employee may elect to defer compensation that would have been received for services rendered to E in any taxable year until death, separation from service with E, or until the occurrence of an unforeseeable emergency. E represents that its Plan has not adopted any provision permitting a loan to be made to its participants or their beneficiaries from its assets. The participant’s election to defer compensation under the Plan must be filed prior to the beginning of the month in which his or her salary reduction agreement becomes effective. The Plan provides for a maximum amount that may be deferred by a participant in any taxable year and also provides for a catch-up computation for amounts deferred for one or more of the participant's last three taxable years ending before he attains normal retirement age under the plan. The amounts that may be deferred under the annual maximum limitation and the catch-up provision are within the limitations of section 457 including the section 457(c) coordinated deferral provision. E also represents that only the distribution options provided in the Plan documents will be offered to and used by its participants and beneficiaries. With certain limitations, a participant may elect the manner in which his deferred amounts will be distributed. The election generally must be made prior to the date any such payment must commence to the participant. If the participant fails to make a timely election, distribution will commence at the time and in the manner set forth in the Plan. The Plan also includes a provision permitting a one-time additional election by a participant to further defer commencement of his distributions under the Plan after the first permissible payout date if distribution from his account has not already

- 2 - PLR-120966-98 commenced. The Plan provides that the manner and time of benefit payout must meet the distribution requirements of sections 401(a)(9) and 457(d)(2) of the Code. Amounts of compensation deferred under the Plan are invested in an annuity contract which states that all amounts invested therein are held for the exclusive benefit of the participants and their beneficiaries. Also, all amounts deferred under the Plan must be transferred to that annuity contract within an administratively reasonable time period. The annuity contract is represented to be one that complies with the requirements of section 401(f). The rights of any participant or beneficiary to payments pursuant to the Plan are generally nonassignable and not subject to attachment, garnishment, transfer or execution. Section 457 of the Code provides rules for the deferral of compensation by an individual participating in an eligible deferred compensation plan as defined in section 457(b). Section 457(a) of the Code provides that in the case of a participant in an eligible deferred compensation plan, any amount of compensation deferred under the plan and any income attributable to the amounts so deferred shall be includible in gross income only for the taxable year in which such compensation or other income is paid or otherwise made available to the participant or beneficiary. Section 457(g) provides that a plan maintained by an eligible governmental employer shall not be treated as an eligible deferred compensation plan unless all assets and rights purchased with such deferred compensation amounts and all income attributable to such amounts, property, or rights of the plan are held in trust for the exclusive benefit of participants and their beneficiaries. Section 457(g)(3) states that custodial accounts and contracts described in section 401(f) shall be treated as trusts under rules similar to the rules under section 401(f). Based upon the provisions of the Plan summarized above, and the documents presented, we conclude as follows: 1. The restated Deferred Compensation Plan established by Entity E is an eligible deferred compensation plan as defined in section 457(b) of the Internal Revenue Code of 1986 as amended under sections 1447 and 1448 of the Small Business Job Protection Act of 1996. 2. Amounts of compensation deferred in accordance with the Plan, including any income attributable to the deferred compensation, will be includible in the recipient’s gross income for the taxable year or years in which

- 3 - PLR-120966-98 amounts are paid or otherwise made available to an employee or beneficiary in accordance with the terms of the Plan. 3. The annuity contract associated with E’s section 457(b) Plan is treated under section 457(g) as a trust which is treated as an organization exempt from taxation under section 501(a). No opinion is expressed concerning the timing of the inclusion in income of amounts deferred under any deferred compensation plan other than E's restated Plan described above. In addition, this ruling applies only to deferrals made after the date this ruling was issued. If the Plan is significantly modified, this ruling will not necessarily remain applicable. If the Plan adopts provisions permitting loans to its participants or their beneficiaries from its assets, this ruling will no longer be effective. This ruling is directed only to Entity E and applies only to the revised Plan submitted on December 21, 1998 as revised by the March 19 amendments and to the annuity contract submitted on January 5, 1999. Section 6110(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 ruling have not yet been adopted. Therefore, this ruling may be modified or revoked if the adopted temporary or final regulations are inconsistent with any conclusion in the ruling. See section 12.04 of Rev. Proc. 99-1, 1999-1 I.R.B. 6, 47. However, when the criteria in section 12.05 of Rev. Proc. 99-1 are satisfied, a ruling is not revoked or modified retroactively except in rare or unusual circumstances. Sincerely yours, ROBERT D. PATCHELL Assistant Chief, Branch 1 Office of the Associate Chief Counsel (Employee Benefits and Exempt Organizations) Enclosure: Copy for section 6110 purposes