Friday, April 20, 2012

Update on IRS Governmental Plans Definition Effort

As you know, on November 8, 2011, the Internal Revenue Service (IRS) and the Treasury Department published their long-awaited Advance Notice of Proposed Rulemaking (ANPRM) relating to the definition of the term “governmental plan” under section 414(d) of the Internal Revenue Code (IRC) as well as additional rules regarding the definition of an Indian Tribal Government (ITG) governmental plan. Each notice contains an appendix setting forth a draft of possible proposed regulations. (These regulations have not actually been proposed yet, and are provided as an example of what a proposal in this area might look like.)

Section 414(d) of the IRC generally defines a governmental plan as "a plan established and maintained for its employees by the Government of the United States, by the government of any State or political subdivision thereof, or by any agency or instrumentality of any of the foregoing." If a public plan fails to meet this definition, then ERISA titles I (Federal protection of employee benefit rights, administered by the DOL’s Employee Benefits Security Administration) and IV (plan termination insurance, enforced by the PBGC) would technically apply to it. In addition, the nondiscrimination and minimum participation rules of the Federal tax code would also apply, as would the minimum funding standards. In short, this is a big deal! The ultimate outcome of this process will have major implications for governmental plans, their sponsors, and participating employers and employees.

This ANPRM is the first step in what will be a multi-year process. The IRS is holding meetings across the country on their proposal, and there will be additional opportunities to formally comment on the regulations as they continue to be developed. The first of these meetings occurred on March 15, 2012, in Oakland, CA, and one attendee has provided a brief summary that he has agreed to share.

The next “town hall” meeting will be in Cleveland, OH, on May 3, 2012, which I plan to attend. The IRS will also hold a “phone forum” on May 15. With regard to formal comments, these are due by June 18, 2012, and there will be a public hearing in Washington, DC on July 9, 2012. Requests to testify, as well as an outline of comments, are also required to be filed by the June 18th deadline.

NCTR and NASRA will be developing joint comments that will focus primarily on administrative issues involved with the proposal, including transition rules, grandfathering and de minimus rules, and safe harbors. However, individual systems are strongly encouraged to consider filing comments where it appears that specific issues will arise, providing examples and explaining the impact on the individual plan. It will be during this current comment period that there will be the greatest chance to make an impact on the drafting of these regulations, so please do not wait until actual proposed regulation are issued before you comment.

Comments can be viewed on the new “” website which is now used for submitting and viewing electronic submissions. There have already been 1,869 comments filed, most from individuals related to the treatment of charter schools. (I find this site very difficult to use; be sure to select “public submissions” as the “Document Type,” and then click on “organization,” which will sort the submissions alphabetically by organization, with submissions from individuals listed at the end. But be forewarned: it is slow going.)

Comment letters to date from public plans include filings from the Illinois Municipal Retirement Fund; the Kentucky Retirement Systems; the Orange County Retirement System; the Oklahoma Municipal Retirement Fund; the Public Employee System of Idaho; and the San Bernardino County Employees’ Retirement System. The law firm of Ice Miller has also prepared a suggested format for such comments that you may wish to consider.

Summary of Oakland IRS Town Hall Meeting

Outline of Oakland Comments of Terry Mumford, Ice Miller

Possible Letter Format