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

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PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCEVIII.RecommendationsThe ACT makes the following recommendations that fall into four basic categories:• Establish a Pre-Approved Plan Document Program for governmental plans• Enhance the Employee Plans Compliance Resolution System (EPCRS) to assistgovernmental plans• Develop Government Plan-oriented educational tools• Build on the IRS-led initiative to partner with governmental plans sponsors andpractitionersThese recommendations are described in more detail in the pages that follow.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 and 403(b) plans over time. Implementation would necessitatedrafting of a Listing of Required Modifications (LRMs), as well as procedures, with whichACT members could assist. Although the existing program is far from perfect, it deliversbenefits and efficiencies to small employers as well as standardization in plan designthat could avert the incidence of some Plan document errors in the governmentalsector. The IRS’s estimate that 94% of qualified plans are pre-approved plans providesevidence of general marketplace demand for the program.Importantly, the availability of a pre-approved plan document program would put publicsector plans on an equal footing with their corporate counterparts within this servicecategory just as EGTRRA put governmental plans on a par with corporate plans withrespect to distribution flexibility. While it is possible that some industry participants (e.g.TPAs) will continue to offer only individually designed plans, the benefits that wouldinure outweigh less than 100% participation from service providers. A reduction in thenumber of uniquely designed plans should reduce the risk of plan document andoperational failure in the market place, lower the cost of adoption and encourageemployers to adopt plans. In summary, a Pre-Approved Plan Program would deliver thefollowing benefits to governmental 401(a), 403(b) and 457(b) plans:• Provide employers with a standardized form of agreement for which IRS approvalmay not be needed• Provide a lower cost of adoption• Minimize the need for employer-initiated amendments when tax laws change• Minimize failures attributable to 401(a) plan service providers’ misuse of currentLRMs.ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 24
PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCEThe ACT is encouraged that the IRS is currently considering a Pre-Approved PlanProgram for 403(b) plans. On the other hand, the ACT recognizes a challenge withrespect to 457(b) plans since the IRS TE/GE Division evidently lacks rulings jurisdictionfor these plans.Enhance the Employee Plans Compliance Resolution System (EPCRS)The 2008 ACT Report entitled “Improving the Employee Plans Compliance ResolutionSystem: A Roadmap for Greater Compliance” contains a full set of well-developedrecommendations for improving EPCRS. This report does not attempt to duplicate thedepth of these recommendations. However, as that report states, EPCRS is animportant tool in assisting plan sponsors to voluntarily comply with IRS requirements.As effective as EPCRS is, many governmental plans are not utilizing it due to its currentlimitations. Therefore, this report reiterates the recommendation that EPCRS beenhanced for the benefit of governmental plans by:• Expanding EPCRS to include coverage of IRC section 457(b) plans 27• Expanding EPCRS to permit correction of IRC section 403(b) plan documentfailures 28• Reforming the VCP fee structure to encourage greater participation among smallemployers 29In addition to availing governmental plans of correction tools that are already availableto corporate plan sponsors, expanding EPCRS coverage to 457(b) plans and 403(b)plan document failures would likely reduce the confusion a governmental plan sponsormay otherwise experience in attempting to navigate IRS voluntary correction-relatedmaterials. As noted previously in this report, governmental 457(b) and 403(b) plans arean important and growing segment of the retirement plan community. Employers thatoffer these plans are becoming increasingly sophisticated and are committed toproactive compliance.In addition to expanding coverage of EPCRS and developing a sliding fee schedule thatwould encourage increased EPCRS utilization, the IRS should consider developing acorrection tool for governmental plans that is similar to the “401(k) Fix-it Guide.” Theaddition of these tools would not only provide a resource for governmental plans, itwould also send a message that the IRS is increasingly committed to assistinggovernmental employers’ voluntary compliance efforts.Develop Educational Tools tailored to Governmental PlansThe IRS has developed a number of tools, communications and products that arehelping both governmental and non-governmental plans achieve their compliance27 Improving the EPCRS: A Roadmap for Greater Compliance, IRS <strong>Advisory</strong> <strong>Committee</strong> on Tax-Exempt and Government Entities,28 Improving the EPCRS: A Roadmap for Greater Compliance, IRS <strong>Advisory</strong> <strong>Committee</strong> on Tax-Exempt and Government Entities, 200729 Improving the EPCRS: A Roadmap for Greater Compliance, IRS <strong>Advisory</strong> <strong>Committee</strong> on Tax-Exempt and Government Entities, 2007ADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 25
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