David N. LevineP2F2 Annual ConferenceOctober 20, 2009

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

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IRS Determination Letters IRS Survey Questionnaire Government Accountability Office

Activity IRS Audits Other Hot Topics

What We’ll Cover

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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

IRS Determination Letters

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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

IRS Determination Letters

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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

IRS Determination Letters

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

IRS Determination Letters

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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

IRS Determination Letters

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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-324.html

IRS Determination Letters

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IRS Determination Letters Upcoming Amendments

PPA Amendments WRERA Amendments HEART Amendments Discretionary Amendments

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Increasing Attention Governmental Plans Roundtable – April

2008 Website Page:

http://www.irs.gov/retirement/article/0,,id=181779,00.html

IRS Concludes That Governmental Plans Are “Underserved”

IRS Survey Questionnaire

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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/article/0,,id=204168,00.html

IRS Survey Questionnaire

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Topics of Survey Plan Demographics / Data – Plan Type,

Amendment Authority, Financial Statement Information

What Items Comprise the Plan Document? Determination Letter Status Plan Terms

IRS Survey Questionnaire

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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

IRS Survey Questionnaire

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Significant Concerns Use of Survey – Informational? Audits?

Other? Timeline for Responding – 90 days? Financial Statements Eligibility Rules Pick Up Provisions

IRS Survey Questionnaire

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Significant Concerns (cont’d) Benefit Formulas Funding Rules Plan Communications Plan Administration and Fiduciary Duties

Groom Comments:

http://www.groom.com/resources-366.html

IRS Survey Questionnaire

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Next Steps Broad Survey Distribution? Corrections? Enforcement?

IRS Survey Questionnaire

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Background on GAO Independent / Nonpartisan Reports to Congress

GAO Activities

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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.items/d08983t.pdf

GAO Activities

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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

GAO Activities

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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.

GAO Activities

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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

GAO Activities

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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

GAO Activities

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Key Issues Plan Data

Groups Covered Type of Plan – Single, Multiple, Multiemployer Demographics Funding Status and Methodology

GAO Activities

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“IRS” Employee Plans Structure – Audit, Guidance, Determinations, Treasury, Chief Counsel

Other Parts of the IRS Enforcement

Increased Resources Compliance “Checks” / Soft Contact EPTA

IRS Audits

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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

IRS Audits

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

IRS Audits

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Purpose: For People Receiving Eligible Rollover Distributions Prior Update: 2002 (Notice 2002-3)

Applicability Now or January 1, 2010 Old Notices Should Be Updated

Special Tax Notice

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Key Provisions Q&A “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

Special Tax Notice

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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

Special Tax Notice

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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 person’s 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)

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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

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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

RMD Suspension

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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”

RMD Suspension

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Timing of Amendments Historical Guidance Informal IRS Comments

Flush Language Issues

457(b) Plan Compliance

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Questions

David N. LevineGroom Law Group, Chartered(202) 861-5436dnl@groom.com