OUTLINE OF REMARKS BY MARY MITCHELL DUNN
SVP AND ASSOCIATE GENERAL COUNSEL FOR REGULATORY AFFAIRS
CREDIT UNION NATIONAL ASSOCIATION
August 29, 2002
IRS Hearing on Eligible Deferred Compensation Plans Proposal
- The IRS' position according to the proposed regulations is that option plans of tax-exempt entities plans fall under Section 457
of the IRS Code rather than Section 83, despite the fact that Section 457 is silent on options. CUNA is very concerned that these
proposed regulations would effectively eliminate the use of option plans offered by credit unions and other tax-exempt entities.
- Section 457 has not been applied to option plans because they have not normally been categorized by practitioners as deferred
compensation plans, to which Section 457 does apply. In our view, this action by the IRS appears to be overreaching, as the proposed
regulations represent a fundamental change in tax law.
- The proposed regulations would create two classes of employees: one class that would be grandfathered as of May 8, 2002 and
allowed to retain the options granted to them prior to this date and a second class that would be barred from participation. This
inability to grant new options to current and future employees would result in similarly situated employees having materially different
compensation arrangements. This treatment has the potential for creating significant management compensation issues. For participants
who were granted options prior to May 8, 2002, options granted after that date should be grandfathered as well.
- Increasingly, credit unions, like many other tax-exempt entities, have implemented option plans in order to attract and retain
key executives and employees. We believe that credit unions should continue to have this tool available to remain competitive in the
employee benefits marketplace.
- We urge the IRS to reconsider the proposal relative to the coordination between Sections 457(f) and 83 in order to afford
fairness to credit unions and other tax-exempt employers.