Internal Revenue Service Department of the Treasury Wa shington, DC 20224 Number: 201150020 Release Date: 12/16/2011 Index Number: 457.00-00 ----------------------------------------------- ------------------------- ------------------------------------- ------ ----------------------------- --------------------------------- Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ----------------------- Telephone Number: --------------------- Refer Reply To: CC:TEGE:EB :QP2 PLR - 111236-11 Date: September 13, 2011 TY: ------------------ TY: ------------------ X = ---------------------------------------------- Amount Y = ----------- Plan = ------------------------------------------------------------------ ---------------- --------------------------------------------------------------------------- State S = ---------------- Dear -------------- : This is in response to a letter of March 11, 2011, and subsequent correspondence submitted on your behalf by your authoriz ed repr e sentatives, requesting a ruling regarding a deferred compensation plan (the "Plan") established by X, an organization exempt from federal income taxation under section 501(c)(3) of the Internal Revenue Code. You request a ruling providing that cer tain amendments to the Plan do not cause amounts deferred under the Plan to be subject to section 457 of the Internal Revenue Code , as amended by section 1107 of the Tax Reform Act of 1986 (the "Act"). X is a non-profit corporation organized under the law s of State S. The Plan was originally adopted effective March 14, 1982, amended and restated on April 10, 1987, and again on January 1, 1996. The Plan was also amended in December 2010 to comply with the requirements of section 409A.

PLR - 111236-11 2 Under the plan, up on retirement, a participant receives a monthly benefit equal to 80% of a participant's average monthly compensation reduced, in part, by the participant's social security and pension benefits. X proposes to amend the Plan to limit the amount of benefits that a participant can receive under the Plan. The Plan will state that the monthly benefit payable under the Plan can not exceed the greater of Amount Y or the normal monthly benefit payable to the participant assuming he or she was age 55 at his or her employment termination. Section 1107(c)(3)(A) of the Act amended the Code to provide that, generally, section 457 of the Code is applicable to a deferred compens a tion plan established and maintained by organizations exempt from tax for taxable years begin ning after December 31, 1986. Section 1107(c)(3)(B)(ii) of the Act provides that section 457 does not apply to amounts deferred under a plan that are deferred for ta x able years beginning after December 31, 1986, pursuant to an agreement that was in writin g on August 16, 1986, and on such date provides for a deferral for each taxable year covered by the agreement of a fixed amount or of an amount determined purs u ant to a fixed formula. A - 28 of Notice 87-13, 1987-1 C.B. 432, provides, in part, that section 457 of the Code shall not apply to deferrals of compensation that would have been paid or made available (but for the deferred co m pensation plan) in taxable years of an individual beginning after December 31, 1986, under a deferred compensation plan of a t ax - exempt organization to the extent that such deferrals were fixed pursuant to a written plan on August 16, 1986. A deferral with respect to an individual is treated as fixed on August 16, 1986, to the extent that a written plan on such date provided for such deferral for each taxable year of the plan and such deferral was determinable on such date under written terms of the plan as a fixed dollar amount, a fixed percentage of a fixed base amount (e.g., amount of regular salary, commissions, bonus, or tot al compensation), or an amount to be determined under a fixed formula. An example of a fixed formula is a deferred co m pensation plan that is in the nature of a defined benefit plan u n der which the deferred compensation to be paid to an employee in the fut ure (e.g., on or after separation from service) is in the form of an annual benefit equal to 1 percent of each of the e m ployee's years of service with the employer times the employee's final average salary. A - 28 of Notice 87-13 also provides that a deferr al with respect to an individual is treated as fixed on August 16, 1986, to the extent that a written plan on such date provided for such deferral and the deferral is the same as the deferral in effect with r e spect to such individual under such plan on Aug ust 16, 1986, even if on such date the written plan did not fix the amount of defe r ral. Thus, for example, if under a written plan on August 16, 1986, an employee could elect to have up to 5 percent of regular salary deferred and if,

PLR - 111236-11 3 on August 16, 1986, t he employee had a 5 percent deferral election in effect, subsequent deferrals of the employee's regular salary are to be treated as having been fixed on August 16, 1986, for purposes of this grandfather rule for as long as such deferral continues to be 5 p ercent of the employee's regular salary. Similarly, for example, if, under a specified formula in a written plan on August 16, 1986, an e m ployee earned additional deferred compensation amounts for each year of service with the employer, additional deferre d amounts a t tributable to years of service after December 31, 1986, are to be treated as having been fixed on August 16, 1986, for purposes of this grandfather rule for as long as such deferrals continue to be determined under the formula in effect on Augu st 16, 1986. An amount of deferral that is pursuant to a written plan on A u gust 16, 1986, will cease to be treated as fixed on such date and thus will be subject to section 457 of the Code , as of the effective date of any modification to the written plan that directly or indirectly alters the fixed dollar amount, the fixed percentage or the fixed base amount to which the percentage is applied, or the fixed fo r mula. Similarly, an amount of deferral that is pursuant to a wri t ten plan on August 16, 1986, tha t is treated as fixed on such date because it is the same deferral amount that was in e f fect under such plan on August 16, 1986, will cease to be treated as fixed on such date, and thus will be subject to section 457 , as of the effective date of any modif ication to the amount of the deferral (i.e., any modification to the spec i fied dollar amount, specified percentage of a specified base amount, or specified formula, whichever is applicable). In S. Rep. 100-445, 100th Congress, 2nd Sess. 148 (1988), the Se nate Finance Committee of the Technical Corrections Act of 1988 stated that: The bill clarifies that the grandfather rule applicable to u n funded deferred compensation arrangements of tax - exempt employers applies to all deferred compensation plans of tax-e xempt organiz a tions that otherwise meet the requirements of the grandfather rule, without regard to whether the plans would be eligible d e ferred compensation plans within the meaning of section 457 . The bill also clarified that the grandfather rule only a pplies to individuals who were covered under the plan and agreement on August 16, 1986. Thus, for example, the grandfather rule does not apply to a new employee hired after August 16, 1986, or an e m ployee who was hired on or before such date, but who was not a participant in the deferred compensation plan until after August 16, 1986. Based on the information, documents submitted and the author i ties cited above, we conclude:

PLR - 111236-11 4 1. The Plan provides for a deferral of compensation that is determined pursua nt to a fixed formula within the meaning of section 1107(c)(3)(B)(ii)(II) of the Tax Reform Act of 1986. 2. The reduction in the total benefit resulting from the proposed amendment will not constitute a modification to the "fixed formula" and the adopt ion of the proposed amendment will not cause the Plan to be subject to the requirements of section 457 of the Code. No opinion is expressed with regard to the timing of the incl u sion in income of amounts deferred under the Plan. Except as expressly pro vided herein, no opinion is expressed or implied concerning the 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. T his ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent. In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to yo ur authorized representatives. The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. W hile this office has not ve rified any of the material submitted in support of the request for rulings, it is subject to verification on examination. Sincerely, ----- John T. Ricotta ----- John T. Ricotta Branch Chief, Qualified Plans Branch 2 (Employee Benefits) (Tax Exempt & Go vernment Entities) Enclosure Copy for section 6110 purposes cc: