Tax-Exempt/Governmental Plans Guidebook

IRS Issues Rev. Proc. 2009-36 Extending the Remedial Amendment Cycle for Governmental Plans

The IRS has issued Rev. Proc. 2009-36 extending the remedial amendment cycle for governmental plans.  The cycle is extended to the 91st day after the close of the first legislative session that begins more than 120 days after a determination letter is issued for the plan (or after the occurrence of certain other events relating to a determination letter application) provided that the application for the determination letter is timely submitted to the Service.  The IRS indicates that it is extending the cycle because the normal period may not be enough time for governmental plans to adopt retroactive amendments due to the requirements of state law.

The Rev. Proc. also states formally what was already indicated in a Special Edition of the Employee Plan News issued last November about remedial amendment cycles for individually designed governmental plans.  The Rev. Proc. provides that governmental plans may elect Cycle E, instead of Cycle C, as the initial remedial amendment cycle for the plan. 

Third Circuit Holds Health Plan of a Redevelopment Authority is a Governmental Plan

Benefit plans maintained by governmental entities are exempted from ERISA.  However, sometimes the determination of whether an entity qualifies as a "government" can be difficult.  The Third Circuit in a recent case of Koval v. Washington County Redevelopment Authority held that the Washington County Redevelopment Authority ("WCRA") did constitute a "political subdivision" of the state of Pennsylvania so that a health plan offered by the WCRA was then a governmental plan exempted from ERISA.  The court's analysis is important as the Third Circuit adopted the Second Circuit NLRB test for determining what constitutes a "political subdivision":   

We hereby endorse the NLRB test as the appropriate analysis to apply in determining whether a state-affiliated entity is a “political subdivision” of the state for purposes of 29 U.S.C. § 1002(32).

The court also noted that by statute, the WCRA was given "powers beyond those 'of a private corporation'" which also supported its determination that the authority was a "political subdivision."

ASPPA Asks DOL to Issue Further Guidance on 403(b) Issues

You can access ASPPA's request submitted to the DOL asking for additional guidance on issues affecting 403(b) plans here.  The request highlights many of the issues practitioners and plan sponsors are currently wrestling with and asks the DOL to expand on its guidance previously issued in FAB 2007-2 which addressed this question: 

How do the Department of the Treasury/Internal Revenue Service regulations governing Internal Revenue Code § 403(b) tax-sheltered annuity programs affect the status of such programs under the Department of Labor's safe harbor regulation at 29 C.F.R. § 2510.3-2(f)?

Symposium on Retirement Issues for Colleges and Universities

You can access a paper here summarizing views presented by a group of higher education and financial security leaders on the challenges faced by colleges and universities and their employees regarding retirement issues.  The symposium was hosted by the TIAA-CREF Institute in April of 2009.

 

 

Good Reading on 403(b) Topics

Good article here from Plan Sponsor:  Mid-Year Elimination of Safe Harbor Non-elective Contributions for 403(b) Plans

Also, one here from BNA:  403(b) Plan or 401(k) Plan - How to Decide

Rev. Rul. 2009-18 Lists Obsolete 403(b) Guidance Documents

The IRS recently issued Rev. Rul. 2009-18 declaring certain guidance documents as now obsolete due to the issuance of the comprehensive 403(b) regulations issued back in 2007:

• Rev. Rul. 64-333 (1964-2 CB 114)
• Rev. Rul. 65-200 (1965-2 CB 141)
• Rev. Rul. 66-254 (1966-2 CB. 125)
• Rev. Rul. 66-312 (1966-2 CB 127)
• Rev. Rul. 67-69 (1967-1 CB 93)
• Rev. Rul. 67-78 (1967-1 CB 94)
• Rev. Rul. 67-361 (1967-2 CB 153)
• Rev. Rul. 67-387 (1967-2 CB 153)
• Rev. Rul. 67-388 (1967-2 CB 153)
• Rev. Rul. 68-179 (1968-1 CB 179)
• Rev. Rul. 68-482 (1968-2 CB 186)
• Rev. Rul. 68-487 (1968-2 CB 187)
• Rev. Rul. 68-488 (1968-2 CB 188)
• Rev. Rul. 69-629 (1969-2 CB 101)
• Rev. Rul. 70-243 (1970-1 CB 107)
• Rev. Rul. 87-114 (1987-2 CB 116)
• Rev. Rul. 90-24 (1990-1 CB 97)

• Announcement 95-48 (1995-23 IRB 13)

The following IRS documents are declared obsolete "except to the extent described":

• Notice 90-73 (1990-2 CB 353)
• Notice 92-36 (1992-2 CB 364)
• Notice 89-23 (1989-1 CB 654) (except to the extent described in the last paragraph of “Treatment of Controlled Groups that Include Tax-Exempt Entities” section of the preamble to Treasury Decision 9340 at 72 FR 41138, and 2007-2 CB 499)

IRS Focusing on Governmental Plans Compliance

At the recent IRS Pension Liaison meeting in Washington, D.C., Michael J. Sanders, Acting Mid-Atlantic EP Area Manager, gave this interesting statistic:

1 out of 5 employees in the U.S. are employed by government entities, and governmental plans hold $3.5 trillion in funded pension plan assets. 

He went on to say that, in spite of this statistic, government plans in the past have never received much attention from the IRS on a compliance basis.  That is all changing, according to Mr. Sanders.  In the past year or so the Employee Plans Compliance Unit of the IRS has sent out letters to governmental entities with a questionnaire designed to provide information to the IRS as to how governmental plans are doing in the area of Internal Revenue Code compliance.  The questionnaire is targeting the following areas: 

• Demographics

• Plan documents

• Plan operations

• Plan communications

• Plan administration

Mr. Sanders went on to note that many of the questionnaires sent out had a response date of May 19th and that the IRS is in the process of evaluating the information provided and will soon be sending out questionnaires to additional governmental entities for input.

Please note a couple of the questions being asked:  

• "Is there an individual or entity assigned responsibility for ensuring the Plan's or System's compliance with provisions of the Internal Revenue Code?"

• "Are periodic compliance reviews/audits of the Plan conducted?"

Obviously, both questions are aimed at discerning whether governmental plans are "getting with the program."  

June 30th Deadline for 403(b) Plan Participants

Good article from Segal here on an upcoming deadline for 403(b) plans: 

Section 403(b) plan participants who made defective contract exchanges after September 24, 2007, and before January 1, 2009, have until June 30, 2009 to be sure that any contracts received in defective exchanges are corrected in order to avoid the risk of contract amounts becoming immediately taxable.

The article is talking about this provision in Rev. Proc. 2007-71: 

8.03. Re-exchange back into plan. If, after September 24, 2007 and before January 1, 2009, a contract is issued in an exchange permitted under Rev. Rul. 90-24 (an “intermediate contract”) and, before July 1, 2009, the contract is exchanged in accordance with Rev. Rul. 90-24 for a contract issued by an issuer which is either receiving contributions as part of the plan or has an information sharing agreement as set forth in § 1.403(b)-10(b)(2)(i)(C)(1) and (2) of the 2007 regulations, then the information sharing conditions in § 1.403(b)-10(b)(2)(i)(C)(1) and (2) of the 2007 regulations do not apply to the intermediate contract.

ACT Issues Report of Recommendations

The Advisory Committee on Tax-Exempt and Government Entities has issued a Report of Recommendations which you can access here. The Report provides information on specific topics of interest with emphasis on the interaction of the Tax Exempt and Governmental Entities Division (TE/GE) of the Internal Revenue Service and its stakeholders. This year the Report includes four sections on the following topics: 

• Exempt Organizations: Recommendations to Improve the Tax Rules Governing International Grantmaking 
• International Pension Issues in a Global Economy: A Survey and Assessment of IRS’ Role in Breaking Down the Barriers
• Record Retention Requirements for Tax-Exempt Bonds and Tax Credit Bonds: A Specific Proposal for Published Guidance
• Federal-State-Local Government Compliance Verification Checklist for Public Employers.

FAQs on Governmental Plans

The IRS has posted on its website: Retirement Plan FAQs regarding Governmental Plan Determination Letters. The FAQs are an attempt by the Service to answer some of the ongoing concerns practitioners have had in the governmental plans determination letter process. One of these areas of concerns has to do with plan documentation which is discussed by the Service in this paragraph:

The Service recognizes that governmental plans may have no single cohesive plan document available. The Service is willing to work with a plan sponsor whose plan document consists of documents from various sources and who is unable to submit a restated plan, provided that the sponsor can submit selected material in an organized manner so that Service reviewers can readily determine the applicable plan language.

See also Q & A 3:

What if the plan has not been timely amended and has never received a determination letter or received one a long time ago in the 1970’s? Answer: If a plan has been timely amended, it can submit a request for a determination letter without proof of all amendments since its inception, see Q & A 2. above. However, if a plan has not made amendments timely, it should be submitted under the VCP program. . .

See also this previous post here regarding governmental plans.