[11496]
December 28, 1999
TO: PENSION MEMBERS No. 51-99
PENSION OPERATIONS ADVISORY COMMITTEE No. 61-99
RE: IRS ANNOUNCEMENT REGARDING SECTION 457 PLAN REPORTING
______________________________________________________________________________
The Internal Revenue Service has released Announcement 2000-1, providing interim
information about the reporting requirements applicable to the section 457 plans of state and local
governments. The release concerns plans intended to qualify as “bona fide severance pay plans” under
section 457(e)(11) of the Internal Revenue Code. Under this interim guidance, state and local
governments are instructed not to report distributions on either a Form 1099 or a Form W-2 for any
year in which the participant or beneficiary receives a distribution if the amounts distributed are
provided under the following type of plan:
(1) the plan was in existence on December 22, 1999;
(2) the plan is a broad-based plan maintained by a state or local government employer
primarily for non-highly compensated employees;
(3) the plan is nonelective, i.e., the plan must not provide the participant with a choice
between current and future compensation;
(4) the plan has been treated by the state or local government as a bona fide severance pay
plan under section 457(e)(11) for those years before calendar year 1999 in which the
plan was in existence;
(5) the plan satisfies the following three requirements:
(a) payments under the plan are designed to provide supplemental income for a
transitional period, rather than to provide retirement income;
(b) payments under the plan are made only after separation from service with the
employer, including retirement;
(c) payments are completed within a short period of time, not to exceed 5 years,
after separation from service.
According to the Announcement, many plans with the characteristics described above are
presently treated by their sponsors as “bona fide severance pay plans” within the meaning of section
457(e)(11) and, accordingly, would not be subject to the income inclusion provisions applicable to
ineligible section 457(f) plans. The Service and Treasury, however, are now considering guidance and
seek comments on what types of plans are properly considered bona fide severance pay plans. Written
comments may be sent to the Internal Revenue Service, Attn: CC:DOM:CORP:R (Section 457 Plans),
Room 5201, P.O. Box 7604, Ben Franklin Station, Washington, D.C. 20044. Comments must be
received by February 20, 2000.
Russell G. Galer
Senior Counsel
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