SECTION 5. EFFECTIVE — Internal Revenue Bulletin 1998-32

This revenue procedure is effective August 10, 1998.

DRAFTING INFORMATION

The principal author of this revenue procedure is John Tolleris of the Office of Associate Chief Counsel (Employee Benefits/ Exempt Organizations). However, other personnel from the Internal Revenue Service and Treasury participated in its development. For further information regarding this revenue procedure, contact John Tolleris at (202) 622-6030 (not a toll-free number).

APPENDIX FOR REVENUE PROCEDURE 98–41

MODEL AMENDMENTS

( Note to sponsors: In this appendix presenting the model amendment language, the portions printed in italics are explanatory notes for the benefit of the § 457(b) plan sponsor and are not to be included in the amendments. The portions not printed in italics are the model amendment language for use by the plan sponsor in amending its § 457(b) plan in accordance with this revenue pro- cedure.)

OPTIONAL AMENDMENTS THAT MAY BE ADOPTED BY ANY ELIGIBLE 457 PLAN

AMENDMENT 1 IN-SERVICE DISTRIBUTION OF $5,000 OR LESS

Any one of the following model amendments may be adopted for any § 457(b) plan to provide for the in-service de minimis distri- bution option permitted under § 457(e)(9)(A) of the Internal Revenue Code and described in Section 2.02 above. These amend- ments are in addition to any plan provision requiring distribution of small account balances following the general distribution com- mencement date set by the plan. If it wishes, the plan sponsor may also substitute in the following model amendments a consistent figure lower than $5,000 in place of “$5,000 (or the dollar limit under section 411(a)(11) of the Internal Revenue Code, if greater)”. The plan may adopt only one of Option A, Option B, or Option C.

OPTION A: INVOLUNTARY DISTRIBUTIONS

The following amendment may be adopted by an eligible employer that wishes to provide for the mandatory in-service distribution to participants with aggregate account balances under the § 457(b) plan that total $5,000 or less:

“Involuntary In-Service Distribution: The Plan shall distribute the total amount payable under the Plan to a participant who is an active employee of an eligible employer if the following requirements are met:

(i) the total amount payable to the participant under the Plan does not exceed $5,000 (or the dollar limit under section 411(a)(11) of the Internal Revenue Code, if greater), (ii) the participant has not previously received an in-service distribution of the total amount payable to the participant under the Plan; and

(iii) no amount has been deferred under the Plan with respect to the participant during the two-year period ending on the date of the in-service distribution.”

OPTION B: VOLUNTARY DISTRIBUTIONS

The following amendment may be adopted by an eligible employer that wishes to provide for the voluntary in-service distribution to participants with aggregate account balances under the § 457(b) plan that total $5,000 or less:

August 10, 1998 8 1998–32 I.R.B.

“Voluntary In-Service Distribution: A participant who is an active employee of an eligible employer shall receive a distribution of the total amount payable to the participant under the Plan if the following requirements are met:

(iii) no amount has been deferred under the Plan with respect to the participant during the two-year period ending on the date of the in-service distribution; and

(iv) the participant elects to receive the distribution.”

OPTION C: COMBINATION VOLUNTARY AND INVOLUNTARY DISTRIBUTIONS

The following amendment may be adopted by an eligible employer that wishes to provide for both a mandatory in-service distrib- ution of small account balances (such as $500) and a voluntary in-service distribution election to participants with higher aggregate account balances under the § 457(b) plan that total $5,000 or less:

(i) the total amount payable to the participant under the Plan does not exceed [enter a dollar amount that is less than $5,000], (ii) the participant has not previously received an in-service distribution of the total amount payable to the participant under the Plan; and

(iii) no amount has been deferred under the Plan with respect to the participant during the two-year period ending on the date of the in-service distribution. Voluntary In-Service Distribution: A participant who is an active employee of an eligible employer shall receive a distribution of the total amount payable to the participant under the Plan if the following requirements are met:

(iii) no amount has been deferred under the Plan with respect to the participant during the two-year period ending on the date of the in-service distribution; and

(iv) the participant elects to receive the distribution.”

AMENDMENT 2 ADDITIONAL DEFERRAL ELECTION

The following model amendment may be used to provide for the one “additional” distribution election authorized by § 457(e)(9)(B) of the Internal Revenue Code and described in section 2.03 above. “If a participant has elected, in accordance with the Plan, to defer the commencement of distributions beyond the first permissible payout date, then the participant may make an additional election to further defer the commencement of distributions, provided that the election is filed before distributions actually begin and the later commencement date meets the required distribution commencement date provisions of sections 401(a)(9) and 457(d)(2) of the Internal Revenue Code. A participant may not make more than one such additional deferral election after the first permissible payout date.

For purposes of the preceding paragraph, the “first permissible payout date” is the earliest date on which the Plan permits payments to begin after separation from service, disregarding payments to a participant who has an unforeseeable emergency or attains age 70 ¹ ⁄2, or under the in-service distribution provisions of the Plan.” (Any of the provisions mentioned in the preceding sentence may be omitted if the plan does not include such a provision.)

AMENDMENT 3 COST-OF-LIVING-ADJUSTMENTS

Any § 457(b) plan may be amended to provide for implementing cost of living adjustments to the “$7,500” maximum deferral amount pursuant to § 457(e)(15) by substituting the following for “$7,500” wherever it appears as a limitation on the maximum de- ferral amount under the plan: “$7,500, adjusted for the calendar year to reflect increases in cost-of-living in accordance with sections 457(e)(15) and 415(d) of the Internal Revenue Code.”

MODEL AMENDMENT TO REFLECT MANDATORY § 457(g) REQUIREMENTS FOR GOVERNMENTAL § 457(b) PLANS

AMENDMENT 4 § 457(g) TRUST REQUIREMENTS FOR GOVERNMENTAL § 457(b) PLANS

Any one of the following three model amendments may be used to reflect the mandatory trust requirement applicable to eligible plans of state and local government entities under § 457(g) of the Code. None of these amendments are applicable to § 457(b) plans

1998–32 I.R.B. 9 August 10, 1998

sponsored by tax-exempt organizations that are not state or local government entities, and they may not be adopted by such organi- zations. The last sentence of each of the following model amendments (requiring amounts to be transferred within a 15-day period) is optional.

OPTION A: TRUST

“Notwithstanding any contrary provision of the Plan, in accordance with section 457(g) of the Internal Revenue Code, all amounts of compensation deferred pursuant to the Plan, all property and rights purchased with such amounts, and all income attributable to such amounts, property, or rights shall be held in trust for the exclusive benefit of participants and beneficiaries under the Plan. Any trust under the Plan shall be established pursuant to a written agreement that constitutes a valid trust under the law of [insert name of applicable state].

All amounts of compensation deferred under the Plan shall be transferred to a trust established under the Plan within a period that is not longer than is reasonable for the proper administration of the accounts of participants. To comply with this requirement, all amounts of compensation deferred under the Plan shall be transferred to a trust established under the Plan not later than 15 business days after the end of the month in which the compensation would otherwise have been paid to the employee.”

OPTION B: ANNUITY CONTRACT

“Notwithstanding any contrary provision of the Plan, including any annuity contract issued under the plan, in accordance with section 457(g) of the Internal Revenue Code, all amounts of compensation deferred pursuant to the Plan, all property and rights purchased with such amounts, and all income attributable to such amounts, property, or rights shall be held in one or more annuity contracts, as defined in section 401(g) of such Code, issued by an insurance company qualified to do business in the state where the contract was issued, for the exclusive benefit of participants and beneficiaries under the Plan. For this purpose, the term “annuity contract” does not include a life, health or accident, property, casualty, or liability insurance contract.

All amounts of compensation deferred under the Plan shall be transferred to an annuity contract described in section 401(f) of the Internal Revenue Code within a period that is not longer than is reasonable for the proper administration of the accounts of participants. To comply with this requirement, all amounts of compensation deferred under the Plan shall be transferred to a contract described in section 401(f) of such Code not later than 15 business days after the end of the month in which the compensation would otherwise have been paid to the employee.”

OPTION C: CUSTODIALACCOUNT

“Notwithstanding any contrary provision of the Plan, in accordance with section 457(g) of the Internal Revenue Code, all amounts of compensation deferred pursuant to the Plan, all property and rights purchased with such amounts, and all income attributable to such amounts, property, or rights shall be held in one or more custodial accounts for the exclusive benefit of participants and beneficiaries under the Plan. For purposes of this paragraph, the custodian of any custodial account created pursuant to the Plan must be a bank, as described in section 408(n) of the Internal Revenue Code, or a person who meets the nonbank trustee requirements of paragraphs (2)–(6) of section 1.408–2(e) of the Income Tax Regulations relating to the use of non-bank trustees.

All amounts of compensation deferred under the Plan shall be transferred to a custodial account described in section 401(f) of the Internal Revenue Code within a period that is not longer than is reasonable for the proper administration of the accounts of participants. To comply with this requirement, all amounts of compensation deferred under the Plan shall be transferred to a custodial account described in section 401(f) of such Code not later than 15 business days after the end of the month in which the compensation would otherwise have been paid to the employee.”

August 10, 1998 10 1998–32 I.R.B.

NOTE:

Following is a list of related instructions and forms for filing Information Returns Magnetically/Electronically. A copy of these instructions and forms will be included in the printed copy of Publication 1187:

1998 Instructions for Form 1042–S
Form 4419—Application for Filing Information Returns Magnetically/Electronically
Form 4804—Transmittal of Information Returns Reported Magnetically/Electronically
Form 4802—Transmittal of Information Returns Reported Magnetically/Electronically (Continuation of Form 4804)
Form 8508—Request for Waiver From Filing Information Returns on Magnetic Media (For Forms W–2, W–2G, 1042–S, 1098, 1099 Series, 5498, 5498–MSA and 8027)
Form 8809—Request for Extension of Time to File Information Returns (For Forms W–2, W–2G, 1042–S, 1098, 1099, 5498, 8027)
Notice 210—Preparation Instructions for Media Label

The Internal Revenue Service, Martinsburg Computing Center, encourages filers to make copies of blank forms for future use.

Rev. Proc. 98–44

Use this revenue procedure to prepare Tax Year 1998 Forms 1042–S for submission to Internal Revenue Service (IRS) using any of the following:

Tape Cartridge
Magnetic Tape
8mm, 4mm, and Quarter Inch Cartridges
- 5 ¹ ⁄4-inch Diskette
- 3 ¹ ⁄2-inch Diskette
- Electronic Filing
(Bisynchronous)
(Asynchronous)

Caution to filers

Format changes to accommodate Year 2000 are included in this publication for TY98, calendar year 1999. To be in compliance with Year 2000 changes, the current bisynchronous electronic filing communications package will change in the future.

Please read this publication carefully. Persons or businesses required to file information returns magnetically or electron- ically may be subject to penalties for failure to file or include correct information if they do not follow the instructions in this revenue procedure.

1998–32 I.R.B. 11 August 10, 1998

Contents Part A. General