journal of pension planning & compliance - Kluwer Law International

12 / JOURNAL OF PENSION PLANNING & COMPLIANCE
In other words, a QEBA is treated as a nonqualified deferred
compensation plan sponsored by a for-profit employer for purposes
of income tax treatment. The income tax treatment of amounts under
a nonqualified deferred compensation plan or excess benefit arrangement
maintained by a private employer depends greatly on the plan’s
design. Several doctrines determine whether, depending on the plan’s
provisions, a participant will be immediately taxed on any amount
deferred or contributed to the plan. These doctrines include the Constructive
Receipt Doctrine, the Economic Benefit Doctrine, and the
application of the statutory provisions of Code Sections 83 and 402(b).
A trust established under the plan to help the employer meet its obligations
to pay benefits must also satisfy certain requirements to avoid
taxation of the plan participants before distribution. However, QEBAs
are excepted from the provisions of Code Sections 457(f). ( See Code
Section 457(f)(2)(E) and 409A ( see Code Section 409A(d)(2)(C)).)
ADDITIONAL REPRESENTATIONS
Recently, the IRS has informally requested that governmental plan
sponsors make the following additional representations when seeking
a private letter ruling (“PLR”) with regard to the establishment of a
QEBA:
• That the underlying defined benefit or defined contribution plan is
intended to be a qualified plan under Code Section 401(a) and is a
governmental plan described in Code Section 414(d);
• That a trust is established for the QEBA and funded so that benefits
may be paid as necessary to comply with the applicable Code
Section 415 limitations;
• That any employer covered by the underlying plan may be permitted
to participate in a QEBA, provided that such employer is a
municipality, political subdivision, an agency or instrumentality of
a state, or an agency or instrumentality of one or more municipalities
or political subdivisions; and
• That no employee contributions may be made to the QEBA.
The latter two representations have raised concern in certain
circumstances.
First, with respect to governmental employers, the IRS looks at
the underlying plan’s “plan document” (including statutes, regulations,