Internal Revenue Service Department of the Treasury Wa shington, DC 20224 Number: 200933003 Release Date: 8/14/2009 Index Number: 457.05-00, 457.12-02 ------------------------- --------------------------------------------------- ---------------------- ------------------- ---------------------------------- Third Party Communication: None Date of Communication: Not Applicable Person To Contact: --------------------- , ID No. ----------------- Telephone Number: -------------------- Refer Reply To: CC:T EGE:EB:QP2 PLR - 138641-08 Date: February 13, 2009 Legend Entity E = ------------------------------------------------------------------------------------ -------------------------------------------- State S = ------ Plan = --------------------- ---------------------------------------------

Dear ----------------- : This responds to your authorized representative’s original letter and subsequent correspondence, on behalf of State S and its section 457 plan, requesting a rul ing concerning its deferred compensation plan (the "Plan") which S intends to be an eligible deferred compensation plan under section 457(b) of the Internal Revenue Code of 1986 (the “Code), as amended under the Economic Growth and Tax Relief Reconciliatio n Act of 2001 (EGTRRA) and in subsequent legislation. The Plan will be administered by State S’s Entity E. The Plan has been or will be adopted only by State S and its political subdivisions and instrumentalities which adopt and choose to participate in the Plan. It is represented that any political subdivisions and/or instrumentalities that adopt the Plan are eligible governmental employers described in section 457(e)(1)(A) of the Code Under the Plan a participant who is currently an employee of State S or one of its participating instrumentalities or political subdivisions, may elect to defer compensation that would have been received for services rendered to his/her employer in any taxable year until death, severance from employment, attainment of age 70½, or the occurrence of an unforeseeable emergency.

PLR - 138641-08 2 The Plan provides for a maximum amount that may be deferred by a participant in any taxable year. It 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 or she attains normal retirement age under the Plan. The Plan also provides for the age 50 plus catch-up contributions under sections 414(v) and 457(e)(18). However, the Plan provides that a participant can on ly utilize one of the two catch-up contribution provisions during a single year. The amounts that may be deferred under the annual maximum limitation and the catch-up provisions are within the limitations of section 457(c). A participant’s election unde r the Plan to defer compensation must be filed prior to the beginning of the month in which the compensation to be deferred would have been paid. Wi th certain limitations, a participant or a beneficiary (including an alternate payee) may elect the man ner in which their deferred amounts will be distributed. The Plan provides that the manner and time of benefit payout must meet the distribution requirements of sections 401(a)(9) of the Code. Under the Plan, a participant or beneficiary may elect to hav e any portion of an allowable distribution which constitutes an eligible rollover distribution described in section 402(c)(4) of the Code paid directly to another eligible retirement plan described in section 402(c)(8)(B) such as an individual retirement a ccount (IRA) in a direct rollover, with non-spousal beneficiaries subject to certain limitations set in section 402(c)(11). The Plan provides that any amount of compensation deferred under the Plan is to be transferred to and held in trust for the exclu sive benefit of the participants and their beneficiaries through a custodial account arrangement described in sections 401(f) and 457(g)(3). Such amounts are to be transferred to the arrangement within a limited time period after deferral. The rights of a ny participant or beneficiary to payments pursuant to the Plan are generally nonassignable and not subject to transfer, assignment or attachment. 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)(1)(A) of the Code provides that in the case of a participant in an eligible governmental deferred compensation plan, any amount of compensation deferred under the plan an d 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 to the participant or beneficiary. Section 457(b) provides that the term

PLR - 138641-08 3 "eligible deferr ed compensation plan" means a plan established and maintained by an eligible employer in which only individuals who perform service for the employer may be participants and which meet the deferral limitations described in section 457(c); which meets the di stribution requirements described in section 457(d); which provides for deferral elections described in section 457(b)(4); and, in the case of a governmental plan, which requires the plan assets and income to be held in trust for the exclusive benefit of p articipants and beneficiaries as described in section 457(g). Section 457(b)(5) prescribes that an eligible deferred compensation plan must meet the distribution requirements of section 457(d). Section 457(d)(1)(A) provides that for a section 457 plan t o be an eligible plan, the plan must have distribution requirements providing that under the plan amounts will not be made available to participants or beneficiaries earlier than i) the calendar year in which the participant attains age 70½, ii) when the p articipant has a severance from employment with the employer, or iii) when the participant is faced with an unforeseeable emergency as determined under Treasury regulations. Section 457(e)(1)(A) defines an eligible employer to be a state, political subdi vision of a state, any agency or instrumentality of a state or political subdivision of a state. Section 457(e)(16) provides that with respect to an eligible retirement plan established and maintained by a governmental employer, if 1) any portion of the balance to the credit of an employee in the plan is paid to him/her in an eligible rollover, 2) the employee transfers any portion of the property received in such distribution to an eligible retirement plan, and 3) in the case of a distribution of non-mo netary property, the amount so transferred consists of the property distribution, then such distribution (to the extent so transferred) shall not be includible in gross income for the taxable year in which paid. Section 457(g) provides that a plan mainta ined 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 example in custodial accounts or annuity contracts that are described in section 401(f), for the exclusive benefit of participants and their beneficiaries. Section 457(g)(3) provides that for purposes of section 457(g), custodi al accounts and contracts described in section 401(f) shall be treated as trusts under rules similar to the rules under section 401(f) which means such accounts and contracts would be treated as organizations exempt from taxation under section 501(a).

PLR - 138641-08 4 Ba sed upon the provisions of the Plan summarized above and the documents presented, we conclude as follows: 1. Assuming that all of the participating employers which join the Plan are instrumentalities or political subdivisions of State S, the Plan constitut es an eligible deferred compensation plan as defined in section 457(b) of the Code as amended under EGTRRA and subsequent statutes. 2. Amounts of compensation deferred in accordance with the Plan, including any income attributable to the deferred compensatio n, will be includible under section 457(a)(1)(A) in the recipient’s gross income only for the taxable year or years in which amounts are paid to a participant or beneficiary in accordance with the terms of the Plan. 3. The Plan satisfies the trust require ment of section 457(g) of the Code through a custodial account arrangement described in section 401(f) which shall be treated as a trust which is an organization exempt from taxation under section 501(a) of the Code. 4. Any payment made from the Plan in the for m of an eligible rollover distribution (as defined in section 402(c)(4) of the Code), including a direct rollover, is not includible in gross income in the year paid to the extent the payment is transferred to an eligible retirement plan (as defined in section 402(c)(8)(B) of the Code) within 60 days, including the transfer to the eligible retirement plan of any property distributed from the Plan and such transfer made by a non-spousal beneficiary within the limitations of section 402(c)(11). No opinion is expressed concerning the timing of the inclusion in income of amounts deferred under any deferred compensation plan other than State S’s Plan described above. If the Plan is significantly modified, this ruling may n ot necessarily remain applicable.

PLR - 138641-08 5 This ruling is directed only to the Plan and not to any other section 457(b) plan, and it applies only if State S revises the Plan originally submitted on September 2, 2008, with the amendments submitted on January 27, 2 009. Section 6110(k)(3) of the Internal Revenue Code provides that this ruling may not be used or cited as precedent. Sincerely, Cheryl Press Senior Counsel, Qualified Plans Branch 2 (Employee Benefits) (Tax Exempt & Government Entities) Enclosu re: (1) cc: