The IRS and the Department of Treasury are requesting comments on possible standards for determining if a retirement plan is a governmental plan under section 414(d) of the Internal Revenue Code.
Federal, state, local and Indian tribal governments and their employees are interested in this topic because the statutory rules that apply to governmental plans are different from those that apply to non-governmental plans.
The agencies released drafts of possible approaches to guidance in this area on Nov. 7. Comments are invited on these approaches, other possible approaches and other issues that should be taken into account. The IRS also plans to conduct meetings with interested taxpayers in different areas across the country.
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According to a statement, the IRS and Treasury department initiated this process because "the lack of comprehensive 414(d) guidance has made it difficult for government employers and their employees to have the certainty that they need in this area. In addition, the Pension Protection Act of 2006 contained statutory changes related to plans maintained by Indian tribal governments."
Governmental plans are exempt from certain qualification requirements and titles I and IV of the Employee Retirement Income Security Act of 1974 do not apply to government plans. The IRS, Department of Labor and Pension Benefit Guaranty Corporation have become increasingly concerned with the growing number of requests for governmental plan determinations from plan sponsors whose relationships to government entities are increasingly remote.
The General Notice defines the terms United States, State and political subdivision of the State. It describes the multiple factors under consideration for determining whether an entity is an agency or instrumentality of the United States or an agency or instrumentality of the State or political subdivision and proposes a facts and circumstances test to determine whether an entity meets the above requirements.
The effective date for any changes would be no earlier than plan years beginning after publication of the final regulations.
Concerning Indian tribal governments, the IRS would like there to be a distinction between what constitutes a commercial or governmental entity. In its proposed rules, it defines commercial activities as operating a hotel, casino, service station, convenience store or marina; any activities that are operated for a profit and cater to people outside the tribes. Governmental activities would include police, fire, public works, museums and any other organizations that are nonprofits and were initiated to serve tribal members.
Implementation of these rules wouldn't take place any sooner than six months after publication of the final rules, according to the IRS notice.
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