Highlights of the Regulatory Plan and Unified Agenda Highlights of the Regulatory Plan and Unified Agenda

Highlights of the Regulatory Plan and Unified Agenda

On Dec. 14, 2017, the Trump administration released its fall 2017 Regulatory Plan and the Unified Agenda of Regulatory and Deregulatory Actions ("Plan"), which provides an updated report on the actions federal departments and administrative agencies plan to undertake in the near and long term. The agendas include regulatory plans and priorities for 2018 and provide a framework of activity expected throughout next year. The Plan is typically released with little fanfare, but more attention was paid this time because of the administration's focus on deregulatory activity. In early 2017, President Trump signed an executive order requiring agencies to cut two regulations for every new one issued. The Plan reveals that, for 2018, agencies plan to cut three regulations for every new one issued. 

The Plan has two sections, the Regulatory Plan and the Unified Agenda, which are then generally broken down into subsections by agency. Each agency's Regulatory Plan contains a narrative statement of regulatory priorities and a description of the agency's most important significant regulatory actions. The Department of Treasury's section is further broken down into subdivisions, one of which is the Internal Revenue Service ("IRS"). In the IRS' plan, it lists two items of particular interest to public pension funds.

Regulatory Plan Provisions

First, the IRS lists the withdrawal of a proposed definition of "political subdivision" as one of its deregulatory actions. This definition is used for determining who can issue tax-exempt bonds. The proposed regulation was first published in February 2016. Commenters on the proposed definition stated long-settled law already provides a definition of "political subdivision," the definition would call into question the status of existing bond issuers, and it would be burdensome for bond issuers to reorganize in order to comply with the new definition.  As a result, the IRS lists the withdrawal of the proposed definition as one of 10 deregulatory actions. We think this action is interesting, although not directly related to public pension funds.  See our discussion regarding the governmental plan regulations below.

Second, the IRS, in listing its priorities during the coming year, mentions the implementation of Executive Order 13813 Promoting Healthcare Choice and Competition Across the United States, which directs the Treasury to consider proposing or revising regulations or guidance to increase the usability of health reimbursement arrangements ("HRAs"). Small employers (with fewer than 50 full-time employees) may, subject to many restrictions, use HRAs to pay or reimburse employees for medical expenses, including premiums for health insurance that qualify as minimum essential coverage. The IRS released the first guidance on HRAs in IRS notice 2017-67.

Unified Agenda

The Unified Agenda provides information about regulations the government is considering or reviewing. The activities included in the Agenda are, in general, those that will have a regulatory action within the next 12 months. Each entry in the Agenda is associated with one of five rulemaking stages: (1) pre-rule stage; (2) proposed rule stage; (3) final rule stage; (4) long-term actions; and (5) completed actions. The IRS' items of interest are all either in the proposed rule stage or the final rule stage. Proposed rules are those for which agencies plan to publish a Notice of Proposed Rulemaking as the next step in the rulemaking process or for which the closing date of the comment period is the next step. Final stage rules are those for which agencies plan to publish a final rule or take other final action as the next step.

Among the rules the IRS lists as planned for 2018, either in the proposed rule or in the final rule stage are:

  • Determination of Governmental Plan Status (proposed rule) – In November 2011, the IRS announced its intention to issue regulations defining the term "governmental plan" under Internal Revenue Code (IRC) Section 414(d). There has been no action following the end of the comment period in 2012. The 2011 Advance Notice of Proposed Rulemaking provides definitions for key terms found in Section 414(d), including: (1) "established and maintained," (2) "United States," (3) "agency or instrumentality of the United States," (4) "state," (5) "political subdivision of a state," and (6) "agency or instrumentality of a state or political subdivision of a state." The rule outlines a factor test to be used to determine whether a plan is a "governmental plan."
As we noted above, in the bond area, the proposed regulations defining "political subdivision" are being withdrawn. The withdrawn regulations required a political subdivision to have three characteristics: (1) sovereign powers, (2) a governmental purpose, and (3) governmental control. This proposed rule defines "political subdivision of a state" as a "regional, territorial, or local authority, such as a county or municipality (including a municipal corporation), that is created or recognized by state statute to exercise sovereign powers." The definition also provides that the governing officers of the authority must be appointed by state officials or publicly elected. Case law offers yet another definition, generally holding that "political subdivision" denotes any division of the state or territory which is a municipal corporation or to which has been delegated the right to exercise part of the sovereign powers of the state or territory. Commissioner of Internal Revenue v. Shamberg's Estate, 144 F.2d 998 (2nd Cir. 1944), cert. denied, 323 U.S. 792 (1945).
  • Withholding on Certain Retirement Plan Distributions Under Section 3405(a) and (b) (proposed rule) – These are proposed regulations regarding withholding on certain retirement plan distributions. Although details of this proposal are not clear in the Unified Agenda, it may relate to distributions made to payees with an address outside the United States. When the IRS released the 2017-2018 priority guidance plan—often referred to as the IRS "business plan"—that sets forth guidance priorities for the IRS for the period July 1, 2017, through June 30, 2018, it included certain projects that have been identified as "burden reducing" and that the IRS believes can be completed in the months remaining in the plan year. Included in that list is "[g]uidance under section 3405 regarding distributions made to payees, including military and diplomatic payees, with an address outside the United States." 
  • De Minimis Error Exception to Penalties for Failure to File Correct Information Returns or Furnish Correct Payee Statements (proposed rule) – The proposed regulations contain safe harbor rules that treat as correct a payee statement or corresponding information return containing one or more de minimis errors relating to an incorrect dollar amount. They prescribe the time and manner in which a recipient of a payee statement may elect not to have the safe harbor rules apply. They also contain updated penalty amounts and updated references to information reporting obligations.  The safe harbor was created by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act) and addressed by the IRS in IRS Notice 2017-9. These proposed regulations will replace the temporary regulations now in the final rule stage. The temporary regulations were put in place to address the PATH Act when it was passed in 2015.
  • Deferred Compensation Plans of State and Local Governments and Tax-Exempt Entities (final rule) – The proposed regulations would provide guidance relating to the definitions of a bona fide severance pay plan under section 457(e)(11) and substantial risk of forfeiture under section 457(f)(1)(B). These regulations would affect sponsors, administrators, participants, and beneficiaries of nonqualified deferred compensation plans of state and local governments and tax-exempt entities.
  • Application of Normal Retirement Age Regulations to Governmental Plans (final rule) – The regulations would apply the normal retirement age regulations to governmental plans. This is the final phase of the developments on normal retirement age. The regulations were announced in January 2016. You can find our information on the regulations here: "Developments on Normal Retirement Age Regulations for Governmental Plans."
For more information, contact Audra Ferguson-Allen, Rob Gauss, Lisa Harrison, Lindsay Knowles, Chris Sears, or the Ice Miller Employee Benefits attorney with whom you work.

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