Compliance October 5, 2009

IRS To Release 457 Plan Guidance

Officials from Treasury and the IRS have indicated that the IRS is planning to issue guidance on a number of issues involving Code Section 457 deferred compensation plans, CCH reported.

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According to CCH, Cheryl Press, a senior attorney with the IRS associate chief counsel (Tax Exempt and Government Entities), noted that the IRS has not issued major guidance under Code Section 457 since it released final regulations in 2003.

She expects guidance about ineligible plans under Code Section 457(f); the definition of a governmental plan under Code Section 414(d); excess benefit plans under Code Section 415(d); and welfare benefit plans excluded from Code Section 457, such as bona fide sick and vacation leave, severance, and death benefit plans.

Press said that in the meantime, the IRS is issuing private letter rulings and responses to congressional inquiries about hardship issues, grandfathered plans, and other concerns. Press and Bill Bortz, Treasury associate benefits tax counsel, spoke at an American Law Institute-American Bar Association (ALI-ABA) conference about deferred compensation plans of tax-exempt and governmental employers.

Prior Guidance

Bortz noted that the 2003 regulations focused on eligible Code Section 457(b) plans and provided less guidance on the exceptions to Code Section 457 and ineligible 457(f) plans. CCH said he further noted that various legislative changes that have yet to be addressed under Code Section 457, include the enactment of Code Section 409A deferred compensation requirements; new rules expanding eligible rollovers to nonspouse beneficiaries; and rollovers of payments under Code Section 402(l) for retiree medical benefits.

Notice 2007-62 requested comments about a number of Code Section 457 issues that need guidance (see “Guidance Coming, Comments Requested on § 457: IRS”). Bortz said comments focused particularly on severance pay plans and whether the definition should incorporate elements of the 409A definition (benefits limited to twice final compensation; benefits conditioned on involuntary termination).

Deals & People October 5, 2009

Report: Invesco Out Front with Van Kampen Bid

Invesco has emerged in the lead to acquire the mutual fund business from Morgan Stanley’s Van Kampen, according to The Wall Street Journal.

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The Journal, citing anonymous sources, said the deal would likely increase Invesco’s assets under management to about $550 billion and leave Morgan Stanley with a minority stake in the Atlanta-based Invesco. The deal is estimated to be worth $1 billion to $2 billion. Morgan Stanley would also likely receive some cash.

Morgan Stanley started pursuing a buyer because its executives felt the Van Kampen business was not big enough to compete in the mutual fund marketplace where some players run $1 trillion or more, according to the report.

If a deal happens, it would be part of a trend of banks and insurers to shed their money-management units to raise capital and focus more on core businesses, the Journal said, citing the examples of Barclays PLC’s decision to sell Barclays Global Investors to BlackRock Inc. (see “Barclays Formally Accepts BlackRock’s Offer for BGI”), and Bank of America’s move to offload most of its asset-management business to Ameriprise Financial (see “BofA Sells Columbia to Ameriprise for $1B”).

Morgan Stanley in recent regulatory filings said its Van Kampen funds manage about $86 billion and Morgan Stanley-branded funds manage about $44 billion. Those would likely be added to Invesco’s assets, pushing assets under management to about $544 billion, according to the news report.

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