PLR 200347019: Federal agency may establish a 401(k) plan for its employees

Plain-English summary

A federal agency asked whether it could establish a 401(k) plan for a group of people it contracts with for work abroad. The IRS ruled that the restriction on 401(k) plans maintained by state and local government employers does not include federal agencies. It therefore concluded that the agency was authorized to establish a 401(k) plan for group members who are its employees. The IRS did not decide whether those individuals actually were employees under the tax law.

Ruling snapshot

• Question: May a federal agency establish a 401(k) plan for the group members who are its employees?
• Outcome: Approved; the state and local government restriction does not bar the federal agency.
• Key authorities: IRC § 401(k)(4)(B)(ii).

Full text (IRS public release)

200347019

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND GOVERNMENT ENTITIES DIVISION
AUG 28 2003

Uniform Issue List: 401.29-00
ATTN:

Legend:
Agency A =
Group B Members =
Statute R =
Statute T =

Dear:

This is in response to your March 25, 2003, request for a private letter ruling, as supplemented by correspondence dated August 4, 2003, concerning whether Agency A may establish a plan described in §401(k) of the Internal Revenue Code (“IRC”) for the benefit of Group B Members who are employees of Agency A. The following facts and representations have been submitted in support of your ruling.

Agency A is an agency of the Federal Government, which contracts with individuals (Group B Members) for personnel services abroad. The basic authorities for the employment of Group B Members by Agency A are Statutes R and T.

Based on the foregoing, you request the following rule:

That Agency A, as an entity of the Federal Government, is authorized to establish an IRC §401(k) plan for its Group B Members who are employees of Agency A.

IRC §401(k)(4)(B)(ii) provides, in part, that a cash or deferred arrangement shall not be treated as a qualified cash or deferred arrangement if it is part of a plan maintained by a State or local government or political subdivision thereof, or any agency or instrumentality thereof.

The IRC specifies the governmental employers (that is, State or local governments, or political subdivisions, agencies or instrumentalities thereof) that are not eligible to maintain IRC §401(k) plans for the benefit of their employees. Accordingly, with respect

200347019

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to your ruling request, we conclude that Agency A, as an entity of the Federal Government, is authorized to establish an IRC §401(k) plan for its Group B Members who are employees of Agency A.

We express no opinion in this ruling as to whether the Group B Members are employees of Agency A under the relevant provisions of the IRC.

This ruling is directed only to the taxpayer that requested it. IRC §6110(k)(3) provides that it may no be used or cited by others as precedent.

Should you have any concerns with this letter, please contact *, SE:T:EP:RA:T3, Badge ID at ***.

Sincerely,

Frances V. Sloan, Manager
Employee Plans Technical Group 3

Enclosures:
Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437