A recent IRS memorandum addresses the application of Internal
Revenue Code section 415(c) contribution limits to DROP plans. http://www.irs.gov/pub/foia/ig/spder/TEGE-07-1114-0029%5b1%5d.pdf.
The IRS memo is a welcome development because it reaches
conclusions that generally do not disrupt the operation of DROPs,
and it allows the IRS to process determination letter requests for
DROP plans that have been pending for over six years in some
cases.
A "DROP" is a feature of a defined benefit plan that
allows an employee who is eligible to retire and receive a pension
to continue working, while the pension payments the employee would
receive if retired accumulate for future payment from the
"DROP" account. Because the DROP creates an account
within a defined benefit plan, it raises the question: are
contributions to the DROP account subject to the contribution
limits of Internal Revenue Code section 415(c)? Before this new
memo, some IRS reviewers refused to issue
