My name is Terry Mumford. I'm a partner with Ice Miller LLP. We work with governmental pension plans across the country – single employer, multiple employer, multiemployer. We have been and will continue to be assisting our clients in preparing written comments on the ANPRM.
My goal today is to bring to your attention the issues that we have seen so far that are causing concern among our clients.
A. Governmental pension plans do not want to get caught between a rock and a hard place. That is, they don't want the eventual final regulations to put them in the difficult situation where one set of laws is going one way and the final regs are going another. Here are some examples:
- Most the plans that we work with view an IRC section 115 ruling as sufficient evidence that the employer is governmental. Therefore, this should be a safe harbor.
- The same would go for an entity that has been determined by the Social Security Administration to be covered by a 218 agreement, or a modification. That should be enough without reviewing other factors.
- The same approach would be followed if a state or federal court has ruled that an entity is a governmental instrumentality.
- While we do understand that the draft proposed regulations only address IRC 414(d), we ask that the Service take into consideration the issue of consistency across governmental agencies. This is a different point than the de minimis participation question. What the plans are saying here is that, if one federal agency says an entity is the instrumentality of state or local government, that should be enough for these purpose.
- The most common concern – probably for multiple employer plans – is the potential conflict between the final regulations and state legislation. Many state laws specifically allow the participation of nonprofit entities, which may not pass the eventual 414(d) tests if those are similar to the current factors. This is an issue where many of the plans that we represent hope participating employers can be grandfathered. There is a split in opinion on how that grandfathering would be implemented – would it protect current employees only or the employer permanently?
We have two points that we would like to make with regard to Revenue Ruling 89-49, which relate to grandfathering:
- For employers and systems who are fortunate to have PLRs under 89-49, we believe that all of these would be protected forever.
- For pension plans that have been applying a good faith interpretation of 414(d), including specifically 89-49, in terms of evaluating participating agencies, we believe that those decisions should remain undisturbed by the final regulations.
- When proposed regulations are issued, we believe that good faith interpretations of those proposed regulations should also be protected.
Now for some final points for what it should mean to be an entity that is grandfathered into a governmental plan – a grandfathered entity and its employees should be treated for all purposes as a non-grandfathered entity: For example:
- 1. ERISA wouldn't apply.
- Special IRC governmental provisions would apply – 415(b), 401(a)(17).
I also want to comment on the concept that a governmental plan must be established and maintained by the governmental employer. There are two scenarios here that should be approved in the final regulations, perhaps via one or more examples.
- The pension plan for bargaining unit employees that its governed by a labor-management board -- This should be a governmental plan if the employer is a governmental entity.
- The pension plan that is maintained by an entity that is separate from the governmental employer should be treated as a governmental plan. This is a very common structure across the country – designed to assure even-handed administration and protection of fiduciary responsibility.
- In this context we also want to address the issue of the governmental employees that could be covered in a governmental plan We believe that a governmental plan could include the following employees of a governmental employer: The employer's employees; the employees that the employer leases FROM another entity; the employees that the employer leases TO another entity.
In closing, I would like to deal with specific IRS procedures.
- First, I would like to make a suggestion with regard to the next Cycle C – which will close in less than 2 years. Based upon what we've been told, it is unlikely that the regulations will be finalized by then. To continue to encourage governmental plans to obtain and maintain their determination letters, it would seem to make sense for the IRS to allow governmental plans to enter the next Cycle C on the same basis that they were allowed to enter the past Cycle C – what might be called as "self-identified" governmental plans.
Finally, our clients would urge you to institute a ruling procedure as soon as possible after the issuance of the final regulations.
On March 15, 2012, the Internal Revenue Service conducted one of two scheduled town hall meetings to allow public testimony and Q&A with regard to the Advanced Notice of Proposed Rulemaking (ANPRM) that was issued November 8, 2011 regarding the definition of governmental plans under IRC Section 414(d). Reg. 157714-06, 76 Fed. Reg. 69172, https://federalregister.gov/a/2011-28853. At this town hall meeting, held in Oakland CA, Terry Mumford presented these remarks. Presenters were limited to 7 minutes each, so Terry could only hit the highlights of client concerns. Ice Miller will be filing more detailed, complete comments prior to the deadline for comments – June 18, 2012.