Internal Revenue Service Department of the Treasury Wa shington, DC 20224 Number: 201722014 Release Date: 6/2/2017 Index Number: 401.29-00 -------------------------------------------------- ------------------------------------------------------------ -------------- -------------------------------------------- --------------------------------------- Third Party Communication: None Date of Communication: Not Applicable Person To Contact: ------------------ , ID No. ------------------ Telephone Number: ---------------------- Refer Reply To: CC:TEGE:EB:QP1 PLR - 131151-16 Date: March 02, 2017 Plan = ------------------------------------------------------------------------ Statute = ------ State = ---------------------- Dear ----------------- : This is in response to your request dated August 26, 2016, in which you request a private letter ruling regarding: (1) whether an election proposed to be offered to certain participants in the Plan would be a cash or deferred arrangement under § 1.401(k) - 1(a)(2) of the Income Tax Regulations; (2) if so, whether the cash o r deferred arrangement would affect the Plan’s qualified status; and (3) if so, the Federal tax consequences of the loss of qualified plan status. The following facts and representations have been submitted under penalty of perjury in support of the rulin g requested: The Plan is a governmental defined benefit pension plan under section 414(d) of the Internal Revenue Code, established effective ---------------------- . The Plan covers the employees of every department and agency of the State, including its public hospitals. The Plan’s most recent favorable determination letter is dated October 27, 2014. In anticipation of the State privatizing or closing its public hospitals, the State legislature enacted Statute. Both houses of the State legislature i nitially passed the legislation, but the State’s governor vetoed the legislation. However, the State legislature overrode the veto and enacted Statute. Due to a legal challenge, Statute is not currently effective, pending the outcome of the legal challeng e. Statute provides that employees of the State’s public hospitals whose positions are being abolished or who are directly affected by a reduction-in-force or workforce restructuring plan, including privatization, could, in lieu of exercising their reduct ion-in-force rights under State law, elect one of the following:

PLR - 131151-16 2 Voluntary severance benefit – a one-time lump-sum cash payment of a percentage of base salary per year of service worked, not to exceed a certain amount; or Special retirement benefit – a subsidized early retirement benefit under the Plan that would permit the employee to retire with an unreduced retirement benefit at an earlier age or with less service than previously permitted under the Plan. Based on the facts and representations s tated above, the Plan requests three rulings. First, the Plan requests a ruling whether, if Statute becomes effective, the election created by Statute would constitute a cash or deferred arrangement under § 1.401(k) - 1(a)(2). Second, if the election creat ed by Statute would constitute a cash or deferred arrangement under § 1.401(k) - 1(a)(2), the Plan requests a ruling whether that cash or deferred arrangement would cause the Plan to fail the qualification requirements for retirement plans under section 401( a). Third, if the existence of the cash or deferred arrangement would cause the Plan to fail the qualification requirements of section 401(a), the Plan requests a ruling on the Federal tax consequences of the disqualification to the Plan and its members a nd beneficiaries. Wi th respect to your first ruling request, § 1.401(k) - 1(a)(2)(i) defines a “cash or deferred arrangement” as, except as otherwise provided, an arrangement under which an eligible employee may make a cash or deferred election with respec t to contributions to, or accruals or other benefits under, a plan that is intended to satisfy the requirements of section 401(a). Section 1.401(k) - 1(a)(3)(i) provides that a “cash or deferred election” is any direct or indirect election (or modification of an earlier election) by an employee to have the employer either provide an amount to the employee in the form of cash (or some other taxable benefit) that is not currently available, or contribute an amount to a trust, or provide an accrual or other benefit, under a plan deferring the receipt of compensation. The election permitted by Statute allows an employee who is already a participant in the Plan to choose either (a) the voluntary severance benefit, or (b) a subsidized early retireme nt benefit. The voluntary severance benefit provides an amount of cash (or other taxable benefit) that is not currently available. The early retirement benefit provides an accrual or other benefit under a plan deferring the receipt of compensation. For this purpose, the term “other benefit” in § 1.401(k) - 1(a)(3)(i) covers a wide variety of potential benefits, and includes a subsidized early retirement benefit that is paid under a pension plan and that an employee would otherwise not be eligible to receiv e. Accordingly, if Statute becomes effective, the election granted to the State employees under Statute with respect to the benefit they receive upon separation from service would constitute a cash or deferred election within the meaning of § 1.401(k) - 1 (a)(3)(i) because it is an election between an amount in the form of cash (or some other taxable

PLR - 131151-16 3 benefit) that is not currently available, and an accrual or other benefit under a plan deferring the receipt of compensation. Because the election would const itute a cash or deferred election, it creates a cash or deferred arrangement within the meaning of § 1.401(k) - 1(a)(2)(i). Wi th respect to your second ruling request, section 401(k)(1) provides that a profit - sharing or stock bonus plan, a pre - ERISA money p urchase plan, or a rural cooperative plan shall not be considered as not satisfying the requirements of section 401(a) merely because the plan includes a qualified cash or deferred arrangement. Section 1.401(k) - 1(a)(1) provides that a plan, other than a profit-sharing, stock bonus, pre - ERISA money purchase pension, or rural cooperative plan, does not satisfy the requirements of section 401(a) if the plan includes a cash or deferred arrangement. For this purpose, a cash or deferred arrangement is part of a plan if any contributions to the plan, or accruals or other benefits under the plan, are made or provided pursuant to the cash or deferred arrangement. In accordance with our conclusion above that Statute, if it becomes effective, would create a “cash or deferred arrangement,” the Plan, which is a defined benefit plan (and not a profit-sharing, stock bonus, pre - ERISA money purchase pension, or rural cooperative plan), would not satisfy the qualification requirements of section 401(a) because it would i nclude a “cash or deferred arrangement.” Wi th respect to your third ruling request, in accordance with Rev. Proc. 2017-1, 2017-1 I.R.B. 1, §§ 6.02 and 6.12, we decline to rule on the Federal tax consequences to the Plan and its members and beneficiaries of disqualification of the Plan, because such a ruling would involve facts pertaining to taxpayers other than the Plan and would be hypothetical given that Statute is not currently effective and may never become effective. The Plan has not been reviewed in addressing this ruling request, and this letter is not a determination as to the whether the Plan, or any provision of the Plan not expressly discussed, satisfies the qualification requirements of section 401(a). For more information about the process for obtaining a determination letter, if available, from the Internal Revenue Service, Tax Exempt and Government Entities Division, Employee Plans, see Rev. Proc. 2016-4, 2017-1 I.R.B. 146. Except as expressly provided herein, no opinion is expressed or i mplied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter. The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a pena lty of perjury statement executed by an appropriate party, as specified in Rev. Proc. 2017-1, § 7.01(15)(b). T his office has not verified any of the material submitted in support of the request for ruling, and such material is subject to verification on e xamination. The Associate office will revoke

PLR - 131151-16 4 or modify a letter ruling and apply the revocation retroactively if there has been a misstatement or omission of controlling facts; the facts at the time of the transaction are materially different from the con trolling facts on which the ruling was based; or, in the case of a transaction involving a continuing action or series of actions, the controlling facts change during the course of the transaction. See Rev. Proc. 2017-1, § 11.05 . This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that it may not be used or cited as precedent. A copy of this letter has been sent to your authorized representative in accordance with a power of attorney on file in this office. Sincerel y, Laura B. Wa rshawsky Senior Technician Reviewer Qualified Plans Branch 2 (Tax Exempt & Government Entities) Office of the Associate Chief Counsel