By Jeff Chang
There are several tools that can be used to correct or fix governmental plan problems.
First, some classification. Practically all the retirement plans we discuss are “tax-advantaged” in one form or another. However, within this group, there are three main subgroups: tax-qualified plans subject to Internal Revenue Code section 401(a), eligible deferred compensation plans subject to IRC section 457(b) and tax-sheltered annuities subject to IRC section 403(b). Although the tax-qualification rules applicable to governmental plans are far less stringent than those applicable to private sector plans, there still are many rules and requirements that must be followed (e.g., contribution limits, deferral limits, distribution restrictions, pick-up rules, etc.). Governmental 457(b) plans have a special rule that generally gives their sponsors more time to fix most compliance problems.