SECTION 2. BACKGROUND AND

GENERAL INFORMATION

.01 Section 457 applies to nonqualified deferred compensation plans established by state and local government and taxexempt employers. These plans may be either eligible plans that meet the requirements of § 457(b) or ineligible § 457(f) plans. Under § 457(a), compensation deferred pursuant to eligible plans that meet the requirements of § 457(b) and the income attributable to such deferred compensation are not includible in gross income until the taxable year in which the deferred amounts are actually paid or made available to the plan participant or beneficiary.

.02 Significant revisions were made to § 457 by the SBJPA and by TRA ’97, including a new trust requirement for compensation deferred under governmental § 457(b) plans and provision for limited in-service distribution of certain small § 457(b) plan amounts. In response to these SBJPA amendments, Revenue Procedure 96–56, 1996–2 C.B. 389, announced that, due to study of these changes, the Service would suspend issuance of rulings regarding the tax effects of provisions under the SBJPA affecting § 457(b) plans until further notice. Notice 96–63, 1996–2 C.B. 228, invited comments on whether the Service should publish model language to provide § 457(b) plan sponsors with a streamlined method for amending their plans to comply with the new SBJPA provisions relating to § 457(b) plans.

.03 Guidance regarding the SBJPA statutory amendments was provided in Notice 98–8, 1998–4 I.R.B. 6. In addition, the Service is publishing Revenue Procedure 98–41 in this issue of the Internal Revenue Bulletin to provide model plan amendments for § 457(b) plans.