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

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PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCE• Documents never amended after adoption, especially when employer hasadopted a "specimen plan"• Compensation definitions and average compensation definitions - somedocuments seem clear, but the actuary has completely interpreted the definitionin another way; which would be ok if the plan actually had the language tosupport it• The smaller the governmental entity the worse the compliance is; they don'tusually have a full time benefits person• Not really any significant document failures because I deal primarily with definedbenefit plans, and the rules for governmental plans allow almost everything. TheIRS rules for governmental plans are mostly boilerplate• No 401(a)(31)rollover language• Failure to properly calculate participants benefits under USERRA. Smallmunicipalities with participants called up to active duty not providing the properinformation to participants in Iraq and Afghanistan and not providing thoseparticipants with proper allocations and vesting credit• Problems with excluding those portions of the plan; that are not applicable togovernmental employers. Many "advisors" to governmental plan sponsors areunable to provide adequate information on the plan provisions that are notapplicable to governmental plans. Thus, the plans often include requirementsthat the governmental employer cannot or will not satisfyThe respondents indicated the following recommendations to improveoperational or document compliance for adopters of Governmental 401(a) Plans:• IRS should create a prototype system for governmental 401(a) plans. Use ofcurrent LRMs would make it easy to delete those provisions that do not applyand require submission of the documents. This would also eliminate theproblems that occur when firms provide specimen documents that employers donot understandSecondly, provide on the IRS website, cautions in utilizing specimen plans, sincethese are not very often kept current or updated for any law changes, unless alaw firm or consulting firm or TPA is involved:• Have pre-approved prototypes for governmental 401(a) plans (i.e. give employers options within the prototype document to have certain ERISA provisions apply or not) • Make a totally separate code section for the rules for governmental plans andnon-electing church plans. Where do you look up the rules for a governmentalADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 34
PROTECTING PLAN BENEFITS:IMPROVING GOVERNMENTAL DEFINED CONTRIBUTION PLAN COMPLIANCEplan now (all over the place)? Some or all of these do not apply: 401(a)(10), 416,401(a)(11), 417, 401(a)(12), 414(l), 401(a)(13), 401(a)(14), 401(a)(15),401(a)(19), 401(a)(20), 401(a)(29), 410, 411, 412, 414(p), 4975, 4980, 6057,6058, 6059, Form 5500. Why not make separate code sections for governmentalplans and a corresponding regulation section. While you’re at it, why not do thesame for non-electing church plans? We find there is generally a lot of confusionas to what applies and what does not apply. I believe that would greatly help thedocument providers to write the documents better, which is where the realanswer to this question lies. Yes these code sections may then be redundant, butthe method by which the code is organized in and of itself appears to be causinga lot of the confusionOn a humorous note: ask Congress to require all government employers (other than theFederal government) to comply with IRC 412 (soon to be IRC 430), that way they will beterminating their large DB plans too like the rest of the country, in order to avoid raisinga lot of new taxes (usually raising taxes hurts you in the next election), thus avoiding alarge future tax burden for us regular non-governmental folks. If this can happen, thenperhaps we can work on the same requirement for some of those federal agencies lateron.• They need more frequent guidance that they can understand. It is like dealingwith children they want it there way and disregard any provisions they don't "like"• I don't think that governmental employers, at least in my state, do badly with thecurrent system• The simplest way to improve compliance for all kinds of retirement plans (not justgovernmental) is for the IRS to abolish the pre-approved regime• Provide a pre-approved governmental 401(a) plan document for money purchaseplans, plans with non-elective contributions (profit sharing) and grandfathered401(k) plans• Eliminated 415(b) 10-years of participation phase-in for governmental plans• Allow an easy mechanism to use standard prototypes but eliminated provisionsnot applicable to Government plans• Let the benefits community know that IRS will be enforcing 401(a) compliance bygovernmental plans• A more reasoned approach to statutory and regulatory changes. Plan sponsorsare overwhelmed by the last three years of changes. If a more comprehensivetime table had been developed by the IRS on what plans needed to be amended;less errors would have occurredADVISORY COMMITTEE ON TAX EXEMPT AND GOVERNMENT ENTITIES (ACT) June 11, 2008 35
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