A recently issued IRS private letter ruling may provide public agencies and their employees with another way to give employees more control over the types of retirement benefits they will eventually receive.
As we previously reported, governmental employers can provide their employees with the benefits of tax-free reimbursements from a health expense reimbursement arrangement. However, HRAs only can be funded with employer contributions – employees cannot make salary reduction contributions. Governmental employers also can make pre-tax retirement contributions to either a 457(b) plan or a 401(a) plan, but, because governmental employers generally cannot maintain 401(k) plans, employee pre-tax elective contributions generally must be made to a 457(b) plan with its lower contribution limits, not to a 401(a) plan.
