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Alan D. Pauw, Esq.
Reed, Weitkamp, Schell & Vice
500 West Jefferson Street, Suite 2400
Louisville, Kentucky 40202-2812
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2003-01A
ERISA Sec. 4(c)
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Dear Mr. Pauw:
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This responds to your request for an advisory opinion from the Department of
Labor (Department) concerning the applicability of Title I of the Employee
Retirement Income Security Act of 1974, as amended (ERISA), to the Kentucky
Public Employees’ 401(k) Deferred Compensation Plan (Plan). You ask
whether the addition of “deemed IRAs,” within the meaning of § 408(q)
of the Internal Revenue Code (Code), to the Plan would result in such “deemed
IRAs” being treated as one or more pension plans subject to Title I of
ERISA, or would otherwise adversely affect the status of the Plan as a “governmental
plan" within the meaning of ERISA § 3(32).
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You represent that the Plan was established and is maintained by the
Kentucky Public Employees’ Deferred Compensation Authority (Authority) on
behalf of the Commonwealth of Kentucky for employees of the state, the state
university system, public school districts and certain other local
governmental entities. The Authority is amending the Plan in accordance with
Ky. Rev. Stat. Ann. § 18A.245, which you describe as authorizing “deemed
IRAs,” within the meaning of Code § 408(q), to be added to the Plan.
Section 408(q) of the Code provides that, if a qualified employer plan
elects to allow employees to make voluntary employee contributions to a
separate account or annuity established under the plan, and under the terms
of the qualified employer plan such account or annuity meets the applicable
requirements of § 408 or § 408A for an individual retirement account or
annuity, then such account or annuity shall be treated for purposes of the
Code in the same manner as an individual retirement plan rather than as a
qualified employer plan. Section 408(q) further provides that contributions
to such a “deemed IRA” shall be treated as contributions to the “deemed
IRA” rather than to the qualified employer plan. You represent, and we
assume for purposes of this letter and without examining the issues
involved, that the Plan, as it is currently structured and operated, is a
governmental plan excluded from Title I coverage by § 4(b)(1) ERISA and
that any “deemed IRAs” established in connection with the Plan would
meet all applicable requirements of the Code.
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Section 4(c) of ERISA, which is effective for plan years beginning after
December 31, 2002, provides that if a pension plan allows an employee to
make voluntary employee contributions to a “deemed IRA” under Code §
408(q), then the “deemed IRA” shall not be treated as part of such plan
(or as a separate pension plan) for purposes of any provision of Title I of
ERISA “other than section 403(c), 404, or 405 (relating to exclusive
benefit, and fiduciary and co-fiduciary responsibilities) and part 5
(relating to administration and enforcement).” Section 4(c) further
provides that those ERISA provisions shall apply in a manner similar to
their application to a simplified employee pension (SEP) under § 408(k) of
the Code.
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Section 4(b)(1) of ERISA provides that Title I of ERISA does not apply to a
“governmental plan” as defined in ERISA § 3(32). Section 3(32) of ERISA
defines the term “governmental plan,” in pertinent part, as “a plan
established or maintained for its employees by the Government of the United
States, by the government of any State or political subdivision thereof, or
by any agency or instrumentality of any of the foregoing.”
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The Department construes ERISA § 4(c) together with the exclusions from
Title I in § 4(b). In the case of the exclusion for governmental plans in
§ 4(b)(1), it is the view of the Department that establishing “deemed
IRAs” as part of a plan would not subject the “deemed IRAs” or the
plan to any provisions of Title I of ERISA if the plan, taking into account
the “deemed IRAs,” continues to meet the definition of a governmental
plan. As noted above, we assume the Plan meets the definition of a
governmental plan in ERISA § 3(32) as it is currently structured and
operated. We further understand your proposal to involve governmental
employees eligible to participate in the Plan being allowed to establish “deemed
IRAs,” within the meaning of § 408(q) of the Code, in connection with the
Plan. Based on those understandings, it is the Department’s view that
amending the Plan to authorize such “deemed IRAs” would not subject
either the Plan or any “deemed IRA” established in connection with the
Plan to Title I of ERISA.
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This letter relates solely to the application of provisions of Title I of
ERISA to the Plan. It is not determinative of any particular tax treatment
under the Internal Revenue Code. For example, this letter should not be read
as expressing any views regarding whether the Plan is a “qualified
employer plan” for purposes of Code § 408(q) or whether any “deemed
IRAs” established in connection with the Plan otherwise comply with the
applicable requirements of the Code.
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This letter constitutes an advisory opinion under ERISA Procedure 76-1, and
is issued subject to the provisions of that procedure, including § 10
thereof, concerning the effect of advisory opinions.
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Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting and Disclosure
Office of Regulations and Interpretations
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