IRS Confirms Extended Compliance Deadlines for Governmental Plans

IRS Confirms Extended Compliance Deadlines for Governmental Plans

In Revenue Procedure 2009-36 the Internal Revenue Service (IRS) has formalized two important procedural changes for governmental plans seeking favorable determination letters.

First, the IRS has extended the remedial amendment period for governmental plans that receive a favorable determination letter. The time period for completing any amendments that are required as part of the favorable determination letter will end on the 91st day of the first legislative session that begins more than 120 days after the determination letter is issued. Here are some examples of how the extension works:

Example 1: If a state governmental plan receives a determination letter issued on September 1, 2009, and if that state's legislature convenes January 4, 2010 (which is more than 120 days after the determination letter is issued), then the remedial amendment period will end 91 days after the close of the 2010 session.
Example 2: If that same state governmental plan received its favorable determination letter October 1, 2009, the remedial amendment period would end 91 days after the close of the next session of the legislature after the January 4, 2010 session, because the January 4, 2010 session would commence in fewer than 121 days after the letter was issued.
Example 3: If a local municipal plan receives a favorable determination letter October 1, 2009, and if the legislative body (the city council) meets monthly, then the monthly meeting of the city council that occurs more than 120 days later (the February 2010 meeting) would be the measuring point, so that the required amendment would have to be adopted 91 days after the February meeting.

Without this extension, governmental plans would be subject to the same remedial amendment period as private sector plans – the amendments would have to be completed within 91 days of the issuance of the determination letter. National Association of Public Pension Attorneys (NAPPA) members will recall that the IRS representatives, at the June 2008 meeting in Boston, stated that they were working on this extension and clearly took into account the requests from NAPPA members that there be a lead time to prepare legislation/ordinance for a session.

Caveat: This extension applies to those remedial amendments that are required for a favorable determination letter. Amendments that are required as a result of a voluntary correction (VCP) filing are governed by the terms of the compliance statement.

Second, the IRS has confirmed that an individually designed governmental plan may elect Cycle E (instead of Cycle C) as the plan's initial Economic Growth and Tax Relief Reconciliation Act (EGTRRA) filing cycle for a determination letter. The election to use this extension is made by filing in Cycle E (February 1, 2010, through January 31, 2011); no election form is required. Such a filing must comply with the requirements for a Cycle E, including the applicable amendments contained in the upcoming Cycle E Cumulative List, and the plan must have been amended in accordance with Cycle C and Cycle D requirements. A determination letter issued in Cycle E for a governmental plan will expire at the end of the next Cycle C (January 31, 2014).

If you have questions about Rev. Proc. 2009-36, please contact Mary Beth Braitman, Terry A.M. Mumford, Lisa Erb Harrison, Katrina Clingerman or your Ice Miller LLP employee benefits attorney.