For years, the governmental plans segment of the benefits industry has been plagued with misinformation about the need for governmental plans to comply with the Internal Revenue Code. On April 22 of this year, the IRS hosted a governmental plans roundtable as part of an initiative to raise awareness about the need for compliance. Today’s Special Edition of the Employee Plan News summarizes what went on at the meeting and announces the IRS’s future plans for ensuring that the governmental plans segment is not left out from all of the compliance “fun” that the rest of the benefits world is experiencing. IRS officials at the meeting admitted that the the IRS has “very little history examining governmental plans” even though “one out of five employees in the United States is a government employee and that governmental plans hold $3.5 trillion in funded pension plan assets.”
So what is in store for governmental plans? The IRS announced the following at the meeting:
Representatives from EP Examinations included Monika Templeman, Director, EP Examinations, and the EP Compliance Unit (EPCU), who explained that EPCU intends to send a survey questionnaire to a small sample of governmental plans in an initial effort to obtain information about the current status of governmental plans. She assured the audience that responding to the survey would not result in an examination, but if issues were identified, the taxpayer would be directed to an IRS web site with information needed to achieve compliance. If the survey questionnaire is not returned, EP Examinations will conduct compliance activity, which could eventually result in an examination of the taxpayer.
Here are some of the issues raised by practitioners at the meeting that seem to be prevalent for governmental plans:
A plan may not have filed for a determination letter in a very long time, maybe as long as 40 to 50 years, and the plan is concerned about the consequences if the IRS finds a problem with the plan. Uncertainty as to what documentation a plan sponsor should submit to the IRS when requesting a determination letter where the plan document may be made up of a number of statutory provisions, ordinances, etc. During the determination letter process, IRS may require amendments to the plan. The state or local legislative body that adopts the amendments may only meet a limited number of times during a year (or may not even meet on an annual basis). The time to adopt the IRS required amendments may not be sufficient for governmental plans. States are subject to Freedom of Information Act laws, which may force the government entity to disclose information submitted to the IRS that could be misrepresented or misunderstood by plan participants or the public. Potential conflicts between state constitutional protections for certain public sector retirement benefits and federal tax law may arise.
The IRS has also announced its new website devoted to governmental plans which you can access here. Posted there are the roundtable presentations. Also, the IRS has provided an email address established for the purpose of allowing the governmental plans community to ask questions of the IRS: governmentalplansdialogue@irs.gov.
This all reminds me of similar compliance efforts targeting educational institutions which have been in the news recently. (Read about the 403(b) universal availability compliance initiative here.) Also, read about compliance efforts focused on IRA-based retirement plans in this previous post “Plan Audits or Pre-Audit Preparation Packs.”