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

2 IRS Determination Letters IRS Survey Questionnaire Government Accountability Office Activity IRS Audits Other Hot Topics What We’ll Cover

3 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

4 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

5 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

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

7 Special Issues for Governmental Plans Amendment Process and Post-DL Amendment Timing html 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

8 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: html html IRS Determination Letters

9 Upcoming Amendments PPA Amendments WRERA Amendments HEART Amendments Discretionary Amendments

10 Increasing Attention Governmental Plans Roundtable – April 2008 Website Page: d=181779,00.html d=181779,00.html IRS Concludes That Governmental Plans Are “Underserved” IRS Survey Questionnaire

11 Survey Draft Circulated in 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: ,00.html ,00.html IRS Survey Questionnaire

12 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

13 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

14 Significant Concerns Use of Survey – Informational? Audits? Other? Timeline for Responding – 90 days? Financial Statements Eligibility Rules Pick Up Provisions IRS Survey Questionnaire

15 Significant Concerns (cont’d) Benefit Formulas Funding Rules Plan Communications Plan Administration and Fiduciary Duties Groom Comments: html IRS Survey Questionnaire

16 Next Steps Broad Survey Distribution? Corrections? Enforcement? IRS Survey Questionnaire

17 Background on GAO Independent / Nonpartisan Reports to Congress GAO Activities

18 Significant Attention to Governmental Plans Current Funded Status of Pension and Health Benefits (Finance Committee, Senate) State and Local Government Pension Plans – Current Structure and Funded Status (July 2008 – Joint Economic Committee) f f GAO Activities

19 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

20 GAO Governmental Plan Survey – July ans/ ans/ 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

21 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

22 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

23 Key Issues Plan Data Groups Covered Type of Plan – Single, Multiple, Multiemployer Demographics Funding Status and Methodology GAO Activities

24 “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

25 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

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

27 Purpose: For People Receiving Eligible Rollover Distributions Prior Update: 2002 (Notice ) Applicability Now or January 1, 2010 Old Notices Should Be Updated Special Tax Notice

28 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

29 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

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 )

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 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: html RMD Suspension

33 Recent Guidance – Notice January – November Transition Period Extended RMD Relief Versus Installments Indirect Rollover Relief December 2009 Governmental Standard - “reasonable good faith interpretations” RMD Suspension

34 Timing of Amendments Historical Guidance Informal IRS Comments Flush Language Issues 457(b) Plan Compliance

35 Questions David N. Levine Groom Law Group, Chartered (202)