Advisory Committee on Tax Exempt and Government Entities (ACT ...

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PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCEMethodologyTo develop its findings and recommendations, the ACT circulated surveys and articles,conducted outreach to stakeholders, aggregated data and consulted with IRS seniormanagement. The ACT believes that its recommendations offer an opportunity to helpemployers better protect their employees’ retirement assets. Should therecommendations be accepted, the ACT is committed to working with the IRS and thegovernmental plan community to develop practical implementation plans and to assistwith the important dialogue the IRS has already initiated with key stakeholders.ObservationsGovernmental employers and employees are an important and growing segment of theNation’s workforce. One in five employees in the United States works for agovernmental entity. The number of State and local governmental employees grew by9.6% from 1997 to 2002 2 . The Bureau of Labor Statistics estimates that thegovernmental workforce will grow by 8% during the 2006 – 2016 period. 3 Governmentalemployers have not, by and large, followed the private sector movement away fromdefined benefit retirement plans as is evidenced by the fact that approximately 90% ofgovernmental employers offer such plans. 4 Despite the prominence of defined benefitplans, however, many governmental employers offer one or more defined contributionplans.Like the employer base itself, the government retirement plan market is broad anddiverse as evidenced by the following:• State and local governments operate 2,670 defined benefit plans that cover 18.5million individuals and hold $3.15 trillion 5• The federal government defined benefit system covers 12.4 million individualsand holds $1.1 trillion of assets 6• Over 90% of the nation’s 16,000 public educational employers offer IRC 403(b)plans• Inclusive of non-profits and churches, 403(b) plans hold $747 billion 7• Inclusive of non-governmental employers, 457(b) plans hold $183 billion 8• The Federal Thrift Savings Plan (TSP) includes 3.7 million participants and holds$207 billion of assets 92 Trends in Public Sector Retirement Plans, Nationwide Retirement Education Institute, Volume II, March 20063 U.S. Department of Labor, Bureau of Labor Statistics4 Trends in Public Sector Retirement Plans, Volume II, March 20065 What Do We Know about the Universe of State and Local Plans? State and Local Pension Plans, Center for Retirement Research at Boston College, Number 4, March 20086 EBRI Databook on Employee Benefits, Employee Benefit Research Benefits Institute, February 20067 State of the 403(b) and 457 Marketplace, Challenges and Opportunities, Cerruli Associates, 20078 State of the 403(b) and 457 Marketplace, Challenges and Opportunities, Cerruli Associates, 2007ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 2
PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCE• Employers utilize 401(a) defined contribution plans for multiple purposesincluding as an employer match plan, an alternative to a defined benefit and/or asupplemental plan• State and local employee access to defined contribution plans that serve asprimary retirement vehicles increased from 9% in the late 1990’s to 14% in 200410• Governmental defined contribution plans operating under IRC sections 401(a),403(b) and 457(b), are increasing in importance due to the following:• Favorable changes authorized under the Economic Growth and Tax ReliefReconciliation Act (“EGTRRA”) of 2001 and the Pension Protection Act (“PPA”)of 2006• Increasingly professional management from within the ranks of State, local andTribal governments• Societal trends towards increased individual responsibility for retirement savings• The increasing number of States, localities and Tribal governments that offerdefined contribution plans as an optional, employer-funded primary retirementvehicleKey FindingsThe following governmental defined contribution plan trends are in evidence:• Increased utilization of 457(b) plans, particularly in the educational sector wherean estimated 35% - 60% of employers now offer this benefit• Employers offering multiple categories of defined contribution and deferredcompensation plans (hereinafter referred to collectively as “defined contributionplans”)• Among many small employers, a lack of knowledge of IRS regulatory requirements and of IRS Tax Exempt and Government Entities Division (“TE/GE”) programs • Among large employers, increased awareness of compliance requirements andfiduciary duty9 EBRI Databook on Employee Benefits, Employee Benefit Research Institute, February 200610Trends in Public Sector Retirement Plans, Nationwide Retirement Education Institute, Volume II, March 2006ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 3
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EXHIBIT DSubmission Type:(insert fr
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EXHIBIT D (CONTINUED)18. Descriptio
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IRC, 2007-CODE-VOL, SEC. 280F. LIMI
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Withholding RequirementsACCOUNTING
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