Proposed Comment Letter
IRS/Treasury Summary: Determination of Governmental Plan Status
February 2012
Dear Plan Sponsor:
As part of our commitment to our clients, ICMA-RC monitors federal regulatory and legislative proposals impacting state and local government retirement plans, and we wanted to make you aware of very preliminary actions certain federal agencies are taking on possible changes to the rules relating to the definition of the term "governmental plan" under Section 414(d) of the Internal Revenue Code ("Code"). These proposed changes may impact you.
The Internal Revenue Service ("IRS") and the U.S. Department of the Treasury ("Treasury") jointly issued an Advance Notice of Proposed Rulemaking ("Advance Notice") describing regulations that the agencies are considering proposing related to the determination of whether a retirement plan is a governmental plan within the current definition of section 414(d) of the Code. The anticipated proposal would define key terms related to the determination of governmental plan status. Significantly, the proposal would establish a "facts and circumstances" test for determining whether an entity is an "agency or instrumentality" of a state or local government eligible to sponsor a governmental plan, and would include a list of "major" and "other" factors that should be considered in this regard.
It is important to note that the draft rule regarding Code section 414(d) is preliminary and has not been formally proposed. We anticipate that there will be changes to the proposal as this discussion unfolds. The Advanced Notice is available online (www.irs.gov/pub/irs-tege/reg_157714_06.pdf), and we have enclosed a copy of the IRS/Treasury summary that outlines the entire document.
We are coordinating closely with the National League of Cities (NLC), and other organizations as appropriate, in developing guidelines to propose to the IRS and Treasury. The IRS and Treasury have requested written comments on their draft proposal, and will take these comments into consideration before formally issuing proposed regulations. The deadline for submitting comments has been extended to June 18, 2012. Realizing that each entity is different, and that there are various views regarding the proposal, we encourage you to communicate your opinions directly to the IRS and Treasury. Now is the opportunity to have your voice heard.
For your convenience, we have enclosed a comment letter template, which is also available online at www.icmarc.org/govplan. This letter can serve as a basis for you to directly communicate your opinion to the IRS and Treasury. We believe that during this initial discussion period there is an opportunity to request greater clarification about the proposal’s application and a wellthought out transition plan, including a potential grandfathering rule, that would address the needs of employees who have long based employment and career decisions on the retirement plans in which they participate, and avoid significant disruptions to participants and plan sponsors. We are monitoring this discussion closely.
The IRS and Treasury have indicated that they will conduct town hall meetings throughout the country, and hearings on July 9, 2012. Pre-registration is required and below are the currently scheduled town hall meetings, as of February 17:
Interested parties who wish to attend the Oakland town hall meeting should preregister by March 1 and those wishing to attend the Cleveland town hall meeting should preregister by April 19.
Please visit www.irs.gov/retirement/article/0,,id=254265,00.html for more information and to register for any of these events.
We have an ongoing commitment to helping public employees build retirement security and will continue to monitor this situation. Please call me if you have any questions or wish to further discuss this information.
Sincerely,
Keith R. Sendall
Senior Vice President, Field Sales
ICMA-RC
Enclosures:
Proposed Comment Letter
IRS/Treasury Summary: Determination of Governmental Plan Status
AC: 0212-5510