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

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PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCEChallenges and GapsGovernmental defined contribution plans are facing significant compliance challengesdue to an increased volume of statutory and regulatory changes, service providerchallenges and the fact that regulatory education has historically been oriented toprivate sector plans. Although they are overwhelmingly beneficial, recent laws andregulations including EGTRRA, PPA and the new 403(b) rules have necessitatedsignificant plan amendment activity and will place unprecedented responsibility onpublic educational employers. Further, governmental 401(a) plans, which areindividually designed, are approaching the determination letter cycle that requires plansubmissions by no later than January 31, 2009. While large employers often possessthe resources and expertise to deal with these challenges, small employers do not. Inany event, it is more critical than ever that the IRS deliver programs, products andservices to help governmental employers protect their employees’ benefits.IRS Governmental Plan InitiativesThe IRS has taken a number of significant actions to address governmental planchallenges and gaps. These actions include the issuance of increased guidance (fromIRS and Treasury) to provide clarification on new and existing laws and regulations. TheIRS has also increased its employer outreach through the TE/GE web site, newslettersand staff visibility. Industry experts have also observed an increase in the developmentof government plan-oriented educational materials, which assist plan officials andservice providers in addressing the sometimes unique challenges associated with publicsector plan administration. In the area of plan design, the issuance of a 403(b) sampleplan and EGGTRA model amendments for 457(b) plans is assisting employers andservice providers in developing plans that incorporate the up-to-date requirements andbenefits. The IRS TE/GE Division has also increased its partnerships with governmentalemployers, practitioners and industry organizations, a step that is necessary tounderstanding employer needs and delivering high quality, cost-effective programs.RecommendationsNotwithstanding the positive steps, gaps and challenges remain. Therefore, the ACTrecommends that the IRS take the following actions: (1) Establish a Pre-Approved PlanProgram for Governmental Plans; (2) enhance the Employee Plans’ ComplianceResolution System, (3) Develop additional Educational Tools Tailored to GovernmentalPlans and; (4) Build on Initiatives to Partner with Governmental Plan Sponsors andPractitioners.Establish a Pre-Approved Plan Program Oriented to Governmental PlansThe ACT recommends that the IRS extend its pre-approved plan document program togovernmental 401(a) defined contribution plans in the near-term and further extend theprogram to 457(b) plans, if possible, and to 403(b) plans over time. Although theexisting program is far from perfect, it delivers benefits and efficiencies to smallemployers as well as standardization in plan design that could avert the incidence ofADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 4
PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCEplan document errors in the governmental sector. A pre-approved plan documentprogram would provide governmental employers with a cost-effective means formeeting plan document requirements, which may encourage increased plan formation.Importantly, a pre-approved plan document program would put public sector plans onan equal footing with their corporate counterparts within this service category.Enhance the Employee Plans Compliance Resolution System (EPCRS)This report reiterates government plan-related recommendations included in the 2008ACT report, “Improving the EPCRS: A Roadmap for Greater Compliance.” Specifically,the ACT recommends that the IRS enhance EPCRS to include coverage of IRC 457(b)plans, permit correction of IRC Section 403(b) plan document failures and reform theVCP fee structure to encourage greater participation among small employers. As notedpreviously in this report, governmental 457(b) and 403(b) plans are an important andgrowing segment of the retirement plan community. Employers that offer these plansare becoming increasingly sophisticated and are committed to proactive compliance.Develop Additional Educational Tools Tailored to Governmental PlansGovernmental employers face challenges in administering multiple categories of plansand in interpreting guidance tailored to corporate plans. The ACT recommends,therefore, that the IRS develop a Multiple Plan Administration Guide, GovernmentalQuestion and Answer (“Q&A”) Guides and several other educational tools to assistgovernmental plans’ compliance efforts.Build on Initiatives to Partner with Governmental Plan Sponsors and PractitionersThe IRS TE/GE team has already embarked on an initiative to work more effectivelywith the governmental plan community toward the end of assisting employers inachieving their compliance objectives. To achieve this objective most effectively, theIRS should follow through on its planned development of a government plans survey,employing an approach that provides comfort to respondents about the consequencesof information sharing. In addition, the IRS should partner with governmental employerorganizations, which have State-level affiliates the IRS may utilize as cost-effectivechannels for distributing mutually beneficial educational programs to local employers.II.BackgroundPublic employees generally choose public sector work out of a desire to serve thepublic. They are also drawn by attractive benefits. One such benefit is retirement plans.To ensure these plans deliver their benefits, employers, service providers (e.g.,practitioners, third party administrators, etc.) and regulators work together to facilitateeach plan’s adherence to relevant statutes, including applicable sections of the InternalRevenue Code (IRC).ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 5
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