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

Newfound Attention from the IRS: Where Do Public Plans Go From Here?. David N. Levine P2F2 Annual Conference October 20, 2009. What We’ll Cover. IRS Determination Letters IRS Survey Questionnaire Government Accountability Office Activity IRS Audits Other Hot Topics.

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

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  1. Newfound Attention from the IRS: Where Do Public Plans Go From Here? David N. Levine P2F2 Annual Conference October 20, 2009

  2. What We’ll 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-324.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/article/0,,id=181779,00.html • IRS Concludes That Governmental Plans Are “Underserved”

  11. 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/article/0,,id=204168,00.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 (cont’d) • 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.items/d08983t.pdf

  19. 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 • 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

  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

  30. 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)

  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 (202) 861-5436 dnl@groom.com

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