EMPLOYEE PLANS CPE TECHNICAL TOPICS FOR 2001
REV. RUL. 2000-33-“Negative Election”-457 Plan
July 31, 2000
Will a deferred compensation plan fail to be an "eligible deferred compensation plan"
described in § 457(b) of the Internal Revenue Code merely because deferrals are made
under an arrangement whereby a fixed percentage of an employee's compensation is
deferred on the employee's behalf under the plan unless the employee affirmatively
elects to receive the amount in cash?
County M, a political subdivision of State X, maintains Plan A, an eligible deferred
compensation plan described in § 457(b). Under Plan A, any employee of County M,
including a newly hired employee, may choose to enter into an agreement pursuant to
which the employee's taxable compensation is reduced and deferrals to the employee's
account in Plan A are credited by County M on the employee's behalf. The employee
may designate a percentage of the employee's compensation as elective deferrals,
subject to the limitations of § 457(b). Plan A does not permit any other type of deferrals,
and no other plan of County M permits employees to make elective deferrals. Deferrals
under Plan A are immediately nonforfeitable and are subject to the limitations and
requirements of § 457(b).
County M proposes to implement, effective the next January 1, an automatic election
feature in Plan A under which, if a newly hired or current employee has not affirmatively
elected to receive cash compensation or to have at least 2 percent of compensation
deferred under Plan A, his or her compensation will automatically be reduced by 2
percent, and this amount will be credited to the employee's account in Plan A. An
election not to make deferrals or to defer a different percentage of compensation can be
made at any time. Elections filed at a later date are effective for the month next
following the date the election is filed.
In the case of a new employee, the election not to make deferrals will be effective for
the first month after the individual