New Revenue Ruling Provides Guidance For Governmental Employers

On August 8, 2006, the Internal Revenue Service issued a new Revenue Ruling providing guidance for governmental employers on their ability to pick-up mandatory employee pension plan contributions on a pre-tax versus post-tax basis for their employees. Revenue Ruling 77-462 (1977-2 C.B. 358) first addressed the income tax treatment of contributions picked up by an employer within the meaning of Internal Revenue Code Section 414(h)(2) (26 U.S.C. § 414(h)(2)). Revenue Ruling 81-35, 1981-1 C.B. 255, Revenue Ruling 81-36, 1981-1 C.B. 255, and Revenue Ruling 87-10, 1987-1 C.B. 136, also addressed picked up contributions. Revenue Ruling 2006-43 amplifies and modifies these three Rulings.

Generally, Revenue Ruling 2006-43 addresses a concern of the Internal Revenue Service about formal written documentation of the date a governmental employer becomes responsible for making the plan contributions of their employees. Governmental employers will have to provide a contemporaneous written document that the pickup contribution amounts will no longer be included as part of the employee's gross income as of a certain date. Relief is provided for governmental employers that were picking up employee contributions before Aug. 28, 2006, giving them until January 1, 2009, to comply. In addition, the Revenue Ruling does not modify or revoke any Internal Revenue Service Private Letter Ruling issued to a taxpayer before August 28, 2006.

Revenue Ruling 2006-43 is expected to be published in the Internal Revenue Bulletin as part of the August 28, 2006, Federal Register.

The text of the advance release of the Revenue Ruling may be obtained at http://www.irs.gov/pub/irs-drop/rr-06-43.pdf

More information will be forthcoming. In the meantime, if you have any questions regarding this Revenue Ruling, please contact Mary Beth Braitman, Terry A.M. Mumford, Lisa Erb Harrison, or Katrina M. Clingerman.