Discussion of Regulatory Topics at the National Conference on Public Employee Retirement Systems (NCPERS) Conference

From the regulatory side, Bill Bortz (associate benefits counsel, U.S. Treasury) addressed the conference on benefit provisions in recent (and at that time pending) federal legislation. In addition, he focused on regulatory projects of particular interest to many governmental plans. These included (i) an expansion of the group trust structure under Rev. Rul. 81-100 to 403(b) plans and retiree health care trusts; (ii) guidance regarding nonqualified deferred compensation under 409A, 457A, and 457(f); and (iii) cash balance plan guidance.

Bortz made particular note of a tri-agency project on the definition of governmental plan. The focus of this project is to address those situations where the employees involved are not employees of an agency of the state. In these cases, the federal agencies are asking "who guarantees the benefits?" Many Ice Miller clients are struggling to fill the void that this project has created because the Internal Revenue Service (IRS) is not issuing rulings on what entities are or are not governmental employers for purposes of compliance with the Internal Revenue Code. This has been a particular problem as plans prepared for Cycle C determination letter filings.

Bortz also addressed an issue where IRS guidance (or gaps in the guidance) is affecting many governmental plans. Bortz discussed the definition of normal retirement age (NRA), which has been included in final regulations that will apply to governmental plans in the 2011 plan year. He stated that the NRA definition is important for governmental plans for two reasons – one is with regard to in-service distributions and the other is with regard to vesting. If a plan does not provide for in-service distributions, then the NRA definition would not be important except for vesting. Bortz's view is that NRA does not have a service component – it is an age. However, that age can be a floating age such as the later of age 65 or 5 years after the initial date of participation. There was a great deal of audience interest in Bortz's comments on the NRA definition, with some plan representatives raising questions regarding how the NRA definition would affect "20 and out" plans. Could those be phrased as the age at which the person as 20 years of participation under the plan? Bortz was not able to give a definitive answer to that question. He noted that plans/employers could make a "demonstration" to the IRS that such an approach would meet the NRA definition. The demonstration is separate from the determination letter process. Bortz also responded to questions regarding multiple tiers and multiple NRAs, stating that it would be ok to have more than one NRA per plan.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.