REQUEST FOR EXTENSION OF GOVERNMENTAL PLANS CYCLE E DEADLINE: Two Washington, D.C. lawyers have requested from Internal Revenue Service an extension of the upcoming January 31, 2011 "Cycle E" determination letter deadline for governmental plans. Although they appreciate the significant steps IRS has previously taken to address the unique properties of governmental retirement plans, the lawyers believe that a one-time extension of the "Cycle E" determination letter deadline for governmental plans until January 31, 2012 would serve the best interests of IRS, plan participants, governmental retirement systems and sponsoring employers for the following reasons:
- Budgetary Restraints. The combined VCP-determination letter process many governmental plans now face is a costly one because of the significant funding restrictions currently imposed on governmental entities. While many governmental entities have made significant efforts, budgetary limitations have sometimes slowed their review of necessary documents and materials, thus making it difficult for them to complete all necessary internal reviews by January 31, 2011. Extending the "Cycle E" deadline would allow these costs potentially to be spread over multiple budget years. Given that these filings are often the first filing for a determination letter by the public plan, requiring extensive review, the extension will facilitate the governmental entity's ability to make the filing, thus encouraging more filings. Also, spreading out such filings for some period past January 31, 2011 may place less burden on IRS and its senior agents often assigned to these cases.
- Multiple Constituencies. The administrative structure for governmental plans can vary from a simple system run by part of a governmental entity to complex retirement boards with independent staff and a need to have proposed filings or plan amendments approved by one or more legislative, executive and other regulatory bodies. State and local governments are frequently under significant time pressures, which, often because of time allocation issues, also make it difficult for some governmental plans to obtain approvals they will need to file their determination letter and VCP applications by January 31, 2011.
- Uncertainty over Required Plan Language. A continuing concern by potential governmental plan filers is the extent to which IRS will accommodate public plan practices regarding required plan language. Many governmental plans rely upon cross-references to Internal Revenue Code sections and satisfy IRC requirements by their terms rather than including the sort of language found in the Listing of Required Modifications used by private sector plans. Any question of the sufficiency of this plan language implicates remedial amendment issues. It also raises questions of what language is required to be tax qualified versus what language IRS requires to receive a determination letter. While language issues often can be resolved within the determination letter process due to IRS's recognition of the unique nature of governmental plans, the prospect of a determination letter application submission by a public plan resulting in imposition of significant audit closing agreement program penalties unless a VCP application is made may be discouraging such applications. An extension of the "Cycle E" deadline would provide more time for “Cycle C” filings to be worked through and for these concerns to be addressed.
- Regulatory Uncertainty. Despite significant efforts made by Internal Revenue Service and its agents when reviewing governmental determination letter applications, there still remains apprehension in many governmental entities about filing determination letter and VCP applications when certain regulatory issues appear to be unresolved. For example, the "Cycle E" cumulative list set forth in Notice 2009-98 reflects IRS's prior guidance in Notice 2008-98 on definition of governmental plan normal retirement age issues that indicates future guidance will clarify application of IRS's normal retirement age regulations to governmental plans. (Notably, the new “Cycle A” cumulative list in Notice 2010-90 also contains a reference to the further delay in governmental plan normal retirement age guidance until 2013.) Another concern is the public discussion by IRS, Department of Labor and Pension Benefit Guaranty Corporation of possible changes to the definition of governmental plan. Thus, many governmental plans are hesitant to put their plans before Internal Revenue Service prior to knowing what regulatory standard they will be required to follow. Further guidance -- either addressing this issue to provide regulatory clarity or indicating that normal retirement age issues will instead be addressed in the next five-year cycle -- would likely facilitate more filings by governmental plans, thus ensuring greater governmental plan compliance that promotes the interests on all stakeholders in this process.
The December 28, 2010 letter was sent to IRS via e-mail. Presumably, IRS will respond prior to the January 31, 2011 “Cycle E” deadline.