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

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PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCEplan participants, and (vii) obligations and timing of required amendments to the plans.This series of lengthy and complex requirements imposed on qualified retirement plans,including the large number of permitted alternatives, requires knowledgeable expertisein the design, implementation and ongoing administration of those plans. Therequirements and benefits (i.e. mandatory and permissive provisions) of the Code areset forth at the plan level in the plan document.Stakeholders in the retirement plan community work together for the benefit of planparticipants to ensure that plans remain compliant with the Code. To accomplish this,plan officials must accurately and practically interpret applicable statutes and rules,construct a plan document that is up to date with IRS requirements, implement andoperate the plan in adherence to plan-level provisions and communicate the availabilityof the plan to eligible employees. Plan sponsors and service providers must also identifyand correct plan errors in a cost-effective manner, should they occur.Plans operating under IRC 401(a), 401(k), 403(b) and 457(b) share many of the samefeatures even though they are governed by different sections of the Code. By definition,they have some unique provisions and are subject to different rules. As one example,Section 457(b) plans are not qualified plans under the IRC, but rather are categorizedas eligible non-qualified plans. As another example, non-discrimination rules apply tocorporate 401(k) plans, but do not apply to 401(a), 401(k) and 457(b) plans offered bygovernment employers. Technically, section 414(b) defines governmental plans as only401(a) plans, but as mentioned previously this report uses a more expansive definitionto better address the employer segment.Consistent with its service mission, the IRS delivers a series of programs, products andeducational tools to assist plan sponsors and practitioners in complying with applicableprovisions and rules of the Code. Due in part to statutory limitations these programs arenot available across every category of plan. In some cases, communications thatdescribe them are oriented more towards corporate 401(k) plans. The IRS providesinformation about these programs through IRS Revenue Procedures, Notices,Publications and other communications. All are designed to give plan sponsors theability to preserve the tax-favored status of their employees’ benefits by designing andoperating compliant plans and by making corrections when necessary.IRS programs, products and services include, but are not limited to:• Employee Plans Compliance Resolution System (EPCRS)• Determinations Programs• Educational Services• Master and Prototype Plan Document System• Model Plans and Model Plan ProvisionsADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 16
PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCEThe following table illustrates the variation in applicability of certain Code rules and IRSprograms across categories of plans:Rev. Proc. 2003-44EPCRSPre-Approved PlanProgramModel Language/Model Amendments401(a) 457(b) 403(b) 401(k)No (specialYes 180 day rule) Yes YesNo – underconsideration YesNo (LRMs notavailable)NoneNo, but canseek PLRNoRev. Proc.2004-56w/respect to Sample PlanEGTRRA IssuedNo, but canseek PLR Yes YesDetermination LetterIRS CorrectionPrograms Yes Yes Yes YesAs noted in the table above, the IRS Pre-approved Plan Program, which providesemployers with a means for adopting a standardized plan, is generally tailored tocorporate 401(k) plans. Another well-regarded IRS program, the Employee PlansCompliance Resolution System (EPCRS), is also not widely available acrossgovernmental plans. The ACT believes that both programs could benefit governmentalplan sponsors. Both are described in more detail below.Pre-Approved Plan Document Program (Prototype System)Generally, there are two classifications into which all qualified retirement plans can bedivided, pre-approved plans and individually designed plans (“IDPs”). Pre-approvedplans are plans which are submitted to the IRS by a sponsoring organization (e.g. ThirdParty Administrator, Practitioner, etc.) and receive an opinion letter or advisory letterpre-approving the plan's language. Pre-approved plans consist of Master and Prototype(“M&P”) plans and Volume Submitter (“VS”) plans. The IRS Pre-approved PlanDocument program is available to qualified plans, but is oriented through itsdocumentation to corporate plans. The program is not available to IRC section 457(b)plans. As reported in the next section of this report, the fact that the Pre-Approved PlanDocument program is oriented towards corporate 401(k) plans is considered to be acompliance gap for governmental defined contribution plans.In contrast to a pre-approved plan, an IDP is a plan which is specifically designed forone employer or a group of employers and then submitted to the IRS for adetermination letter. In the case of 457(b) plans, an IDP may be submitted to the IRS fora favorable private letter ruling (PLR). The purpose of the document approval process isto provide plan sponsors and practitioners with assurance that their plan documentcomplies with the requirements of the Code and other IRS guidance. When they havereceived a favorable Determination Letter or PLR, the employer or practitioner hasachieved a degree of confidence that their plan document design will protect the taxADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 17
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