Case of the Week: 415(m) Plans

The ERISA consultants at the Retirement Learning Center Resource regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and executive compensation arrangements.

A recent call with a financial advisor from Ohio is representative of a common inquiry involving plan types. The advisor asked:

“What is a ‘415(m)’ plan?”

Highlights of Discussion

A 415(m) plan is a type of nonqualified deferred compensation plan offered by public employers (i.e., state and local governments and their agencies, including public schools, colleges and universities). The technical title for these plans is “qualified governmental excess benefit arrangement” under Internal Revenue Code (IRC) §415(m).

IRC §415(m) excess benefit plans are generally used to allow eligible public employees to set aside contributions over and above the contribution/benefit limits of IRC §415 that apply to qualified plans. The sponsoring institution owns the assets but the employees have a vested interest in the benefits. In the event of employer bankruptcy, assets are subject to the claims of the employer’s creditors.

While a 415(m) plan is a type of nonqualified deferred compensation plan, it is not subject to the IRC §409A rules for income inclusion for such plans. Rather, it is treated as if it were a nonqualified plan of a for-profit corporation.

For participant taxation purposes, pre-IRC §409A rules apply, specifically, those found under IRC §83 (related to the value of transferred property for the performance of services); IRC §451 (pertaining to the constructive receipt of income; and the Economic Benefit Doctrine (where taxation occurs in the year that assets are unconditionally and irrevocably paid into a fund or trust to be used for the employee’s sole benefit).

Conclusion

In addition to having a type of qualified plan available to them, employees in the public sector may also have access to 415(m) excess benefit plans, which allow them to set aside amounts over the usual plan limits.

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“Case of the Week” is the winner of an APEX Award for Publication Excellence for 2017.

Any information provided is for informational purposes only. It cannot be used for the purposes of avoiding penalties and taxes. Consumers should consult with their tax advisor or attorney regarding their specific situation.

©2018, Retirement Learning Center, LLC. Used with permission.

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One Comment

  1. Posted February 14, 2018 at 5:31 pm | Permalink

    John and his team are a trust-worthy go-to source when technical expertise is needed on complex matters. The RLC is a tool every Advisor should consider for their toolbox. Provides a small firm big firm resources within their value proposition.

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