David N' Levine

1
Newfound Attention from the IRS Where Do Public
Plans Go From Here?

• David N. Levine
• P2F2 Annual Conference
• October 20, 2009

2
What Well Cover

• IRS Determination Letters
• IRS Survey Questionnaire
• Government Accountability Office Activity
• IRS Audits
• Other Hot Topics

3
IRS Determination Letters

• What Are And Why Get Determination Letters?
• History of Governmental Determination Letters
• 2002 The Plan Amendment Rules Begin to Change
• 2005 The Determination Letter Process Changes

4
IRS Determination Letters

• Development of the IRS Cycle Program for
  Individually Designed Plans
• Cumulative Lists
• Filing Window for Mass Submitter Plans
• Cycle C Now Cycle E (2/1/10 1/31/11)
• IRS Now Reviewing Cycle C Filings

5
IRS Determination Letters

• Interim Amendments
• Later of (1) the due date for the sponsoring
  employer's tax return for the sponsoring
  employer's tax year in which a legally required
  change went into effect and (2) the last day of
  the plan year that includes the date the change
  first became effective

6
IRS Determination Letters

• Discretionary Amendments End-of-Year Deadline
• Non-Required, Optional Amendments
• Good Faith Compliance Issues

7
IRS Determination Letters

• Special Issues for Governmental Plans
• Amendment Process and Post-DL Amendment Timing
  http//www.groom.com/resources-415.html
• Collective Bargaining
• State Constitutional Protections
• Defining Plan Document
• Documentary Compliance Back to GUST
• Impact on Failures Discovered During the
  Determination Letter Process

8
IRS Determination Letters

• To File or Not to File
• Pre-Filing Compliance Status
• Benefits of a Determination Letter
• Alternative Programs for Failures Employee
  Plans Compliance Resolution System
• The IRS Process After Filing
• Groom Comments http//www.groom.com/resources-32
  4.html

9
IRS Determination Letters

• Upcoming Amendments
• PPA Amendments
• WRERA Amendments
• HEART Amendments
• Discretionary Amendments

10
IRS Survey Questionnaire

• Increasing Attention
• Governmental Plans Roundtable April 2008
• Website Page http//www.irs.gov/retirement/articl
  e/0,,id181779,00.html
• IRS Concludes That Governmental Plans Are
  Underserved

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IRS Survey Questionnaire

• Survey Draft Circulated in 2008-2009
• Limited Distribution
• Broad Scope Not Limited to IRS Issues
• Some Organizations Provide Input
• Survey Group of 25 Public Plans
• Identities of Test Group Participants Not
  Revealed
• Caution for Test Group
• Website Page http//www.irs.gov/retirement/articl
  e/0,,id204168,00.html

12
IRS Survey Questionnaire

• Topics of Survey
• Plan Demographics / Data Plan Type, Amendment
  Authority, Financial Statement Information
• What Items Comprise the Plan Document?
• Determination Letter Status
• Plan Terms

13
IRS Survey Questionnaire

• Topics of Survey
• 401(a)(9) (RMDs), 401(a)(17) (Compensation
  Limits), 401(a)(31) (Rollovers), 415(b)/(c)
  (Maximum Benefits/Contributions), and 415(n)
  Compliance (Purchase of Service Credit)
• Plan Communications
• Plan Administration

14
IRS Survey Questionnaire

• Significant Concerns
• Use of Survey Informational? Audits? Other?
• Timeline for Responding 90 days?
• Financial Statements
• Eligibility Rules
• Pick Up Provisions

15
IRS Survey Questionnaire

• Significant Concerns (contd)
• Benefit Formulas
• Funding Rules
• Plan Communications
• Plan Administration and Fiduciary Duties
• Groom Comments
• http//www.groom.com/resources-366.html

16
IRS Survey Questionnaire

• Next Steps
• Broad Survey Distribution?
• Corrections?
• Enforcement?

17
GAO Activities

• Background on GAO
• Independent / Nonpartisan
• Reports to Congress

18
GAO Activities

• Significant Attention to Governmental Plans
• Current Funded Status of Pension and Health
  Benefits (Finance Committee, Senate)
  http//www.gao.gov/new.items/d08223.pdf
• State and Local Government Pension Plans
  Current Structure and Funded Status (July 2008
  Joint Economic Committee) http//www.gao.gov/new.i
  tems/d08983t.pdf

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GAO Activities

• Recent Activities
• Retirement Plan Structures and Fees
• The current structure and characteristics of
  401(a), 403(b), and 457 plans compared to 401(k)s
  and IRAs
• The factors that affect fees for all plans
• Oversight of 401(a), 403(b), and 457 plans
  compared to 401(k)s and IRAs
• Fee disclosure for different types of plans.
• GAO Governmental Plan Survey

20
GAO Activities

• GAO Governmental Plan Survey July 2009
  https//websurveys.gao.gov/pensionplans/
• Investment strategies of public pension plans,
  including governance structures, asset
  allocations, and any changes to strategies that
  may be made in response to the recent market
  downturn.

21
GAO Activities

• Basics of the New Survey
• Required?
• Use of the Survey and Disclosure Issues
• Consistency Issues IRS Survey Versus GAO Survey
• Fitting Your System Inside the Check Boxes
• GAO Responsiveness

22
GAO Activities

• Key Issues
• Governance
• Structure and Documentation (Prudence, Fiduciary
  Duties, Delegation, Ethics Standards)
• Evaluation and Oversight
• Investment Strategies
• IPS, Design of IPS and Parties Involved
• Factors in IPS Design and Revision
• Review and Reassessment
• Asset Allocation and Management

23
GAO Activities

• Key Issues
• Plan Data
• Groups Covered
• Type of Plan Single, Multiple, Multiemployer
• Demographics
• Funding Status and Methodology

24
IRS Audits

• IRS Employee Plans Structure Audit, Guidance,
  Determinations, Treasury, Chief Counsel
• Other Parts of the IRS
• Enforcement
• Increased Resources
• Compliance Checks / Soft Contact
• EPTA

25
IRS Audits

• Current IRS Enforcement Activity
• Payroll Tax Audits
• Employee Versus Independent Contractor
• 403(b) Audits
• Governmental DB Plans
• Other Materials
• EPCRS
• Survey Responses
• Soft Guidance Responses

26
IRS Audits

• Basics of An Audit
• IRS IDR
• Agent Visits
• Data Requests
• Best Practices

27
Special Tax Notice

• Purpose For People Receiving Eligible Rollover
  Distributions
• Prior Update 2002 (Notice 2002-3)
• Applicability
• Now or January 1, 2010
• Old Notices Should Be Updated

28
Special Tax Notice

• Key Provisions
• QA Easier to Read Format
• 402(l)
• New 457 Paragraph
• Roth vs. Non-Roth (DC Plans)
• Rollover to Roth IRA (Withholding Not Generally
  Addressed)
• 10 Early Withdrawal Penalty Language

29
Special Tax Notice

• Key Provisions
• Automatic Rollover Description
• 60 Day Rollover Waiver
• Non-Spouse Beneficiary Rules (Withholding Not
  Generally Addressed)
• Timing of Updates
• Ongoing Update Requirements (September 28, 2009)
• Timing of Updates

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Foreign Bank and Financial Accounts

• FBAR must be filed by a U.S. person with a
  financial interest in or signature or other
  authority over a foreign financial accounts if
  the aggregate value of the persons accounts
  exceeds 10,000 at any time during the calendar
  year
• Significant civil and criminal penalties
• Deadline June 30
• Extension until June 30, 2010 for 2008 and prior
  years for certain filers (Notice 2009-62)

31
Foreign Bank and Financial Accounts

• Not clear if governmental plans must file
• The FBAR instructions define person" as a trust
  and all other legally cognizable entities
• However, under the statute authorizing Treasury
  to determine which persons are subject to FBAR,
  government entities are only to be included if
  specifically prescribed by Treasury
• The vast majority of governmental plans have not
  filed in the past
• Treasury requested comments on FBAR.
• Groom and several others requested clarification
  that FBAR does not apply to governmental plans

32
RMD Suspension

• Suspension of RMDs in 2009
• Scope of RMD Suspension
• Defined Contribution Plans
• Not For Defined Benefit Plans
• General Deadline for Governmental Plans 2011
• Groom Comments
• http//www.groom.com/resources-334.html

33
RMD Suspension

• Recent Guidance Notice 2009-82
• January November Transition Period
• Extended RMD Relief Versus Installments
• Indirect Rollover Relief
• December 2009
• Governmental Standard - reasonable good faith
  interpretations

34
457(b) Plan Compliance

• Timing of Amendments
• Historical Guidance
• Informal IRS Comments
• Flush Language Issues

35
Questions

• David N. Levine
• Groom Law Group, Chartered
• [phone]
• dnl_at_groom.com