Governmental plan using regular Volume Submitter ERISA doc

[Belgarath]

This probably isn't that uncommon, but...

Found a governmental plan using a normal ERISA VS document. The document has all the normal provisions and specifications including that it is an ERISA plan, etc...

Now, as far as I know there is nothing preventing a governmental plan from adopting provisions that aren't legally required - nondiscrimination testing, whatever, whatever. The employer, being governmental, isn't subject to ERISA, so doesn't file 5500 forms, but otherwise operates the plan according to its provisions, even though it doesn't have to adopt a document containing many of the provisions it has.

Only problem I see is that they have never filed for a d-letter (which of course isn't required either). So I suppose they could re-adopt a VS document, updated for PPA, by 1/31/2016 (going from memory, that's the Cycle E deadline) and continue to not file. Since they don't have reliance, because the VS isn't a governmental plan document, then I don't think they are in a position that is any worse than they are now. And probably better than not adopting anything, because it at least shows some efforts at good-faith compliance.

Or, do you think they would be better off just waiting until someone like Sungard gets IRS approval for a prototype/VS governmental pre-approved plan, which I think is coming in the next year or two, and adopting that?

[Kevin C]

What kind of plan is it? Our VS document had grandfathered governmental plan provisions in the EGTRRA version and we have a separate approved VS document for them in the PPA version.

I'm not sure how to cite this and I couldn't find it on the IRS website, but I found this in CCH Intelliconnect:

Pension Rulings and Other Documents,IRS FAQs Regarding Governmental Plan Determination Letters, September 2008.,Internal Revenue Service,(Sep. 2, 2008)

IRS: Government plans: Determination letters: Cycle C: Frequently asked questions (FAQs).– The IRS has released a series of frequently asked questions (FAQs) concerning governmental plan determination letters. The FAQs address the plan documentation requirements for submitting a determination letter application in Cycle C ending on January 31, 2009.

...

4. What cycle applies to a volume submitter governmental plan?

A volume submitter governmental plan is under the six - year cycle applicable to pre-approved plans, rather than Cycle C, which applies to individually designed governmental plans. Practitioners of volume submitter plans have already submitted applications for advisory letters on these plans, and adopting employers may adopt the approved plans during the two-year window that the Service announces. Currently, the two-year window for adopting defined contribution volume submitter plans is open, as announced by the Service in Announcement 2008-23.

[Belgarath]

Hi Kevin - it is just a Profit Sharing plan. But it was completed based upon a "tax exempt corporation" rather than as a governmental plan - consequently, it contains all the ERISA stuff, which doesn't really matter. I'm more concerned with reliance, but they haven't had that anyway, and wouldn't without filing for a d-letter.

Operationally, it looks like everything ok - unnecessarily rigid, as the document is requiring provisions that aren't LEGALLY required (coverage, nondiscrimination, etc.)

[Carol V. Calhoun]

One thing to watch out for is that although a governmental plan isn't subject to ERISA, it is also not subject to ERISA preemption of applicable state law. If what they have adopted is not intended to be a governmental plan, it is unlikely to take account of applicable state law provisions. Some common examples are limitations on the investments of a governmental plan, and requirements that the existing benefit structure (not just the existing accrued benefits) not be changed in a way adverse to any existing participant without that participant's consent.

There are a few consulting firms with existing approved prototype/VS plans intended for adoption by governmental plans, which may be your best option.

[Belgarath]

Thank you Carol. This raises another question - even if you have a pre-approved governmental plan document from a document provider, some of those items you mentioned are unlikely to be specifically addressed - for example, if you have a Sungard "governmental" document, I doubt it will take into account specific State provisions? If that's the case, does the language have something generic incorporating any State law provisions by reference?

If generic, sounds like attorney involvement would be far more crucial for governmental plans than ERISA plans?

[QDROphile]

Doesn't every off-the-shelf document come with a disclaimer and a statement that the plan sponsor should seek legal advice?

[Belgarath]

Yeah, but unless your clients are different than ours, regardless of the fact we tell them to seek legal counsel, abut 1 in 100 actually does. And really, for your run-of-the-mill plan, most provisions are pretty well established, and it rarely matters that much. It seems to me that governmental plans are less standardized in that ERISA does not apply, so you can be all over the place with State law, and the likelihood of noncompliance seems greater.

That may just be 'cause I've seen very few governmental plans.

[mbozek]

One important principle for govt plans is that they are not subject to any rules applicable under ERISA even if the govt adopts a M & P plan which has all of the ERISA provisions because govt plans are statutorily exempt from all ERISA rules including 5500 filing. Failure to comply with ERISA provisions such as protection of benefits from creditors or Vesting of employer contributions does not result in an right of employee to recover benefits from plan sponsor. In addition IRS can not enforce non discrimination requirements applicable to non govt plans against a govt employer because govt plans are exempt from these rules. The question is whether a govt plan that adopts an ERISA plan intended for profit making employers has adopted a plan qualified for a govt entity under the IRC. Some ptype plans may have a disclaimer stating that plan cannot be adopted by a govt employer.

[Belgarath]

Thanks. Every answer seems to bring up another question, and I may be completely misunderstanding what you are saying.

I thought that to remain qualified, a plan has to be administered according to its terms - even a governmental plan. So if the terms of the plan are that there is a vesting schedule - (not because ERISA requires it, but because the employer has chosen to have a vesting schedule) say 6-year graded, for the sake of argument - can't the IRS disqualify the plan even if such a provision isn't legally required, if the plan operationally ignores its own terms?

As far as participant enforcement against the plan if the plan operationally violates its own terms, then I assume you are back to State law? (contract law, employment law, etc. - whatever might apply?)

Thanks again.

[david rigby]

Existing plan might have something similar to 411d6 protection. Yes, govt. plans are exempt, but not if the plan includes such provision. Adoption of a new plan might include some provision that violates the "anti-cutback" language in the current plan.

[TPA2015]

Has anyone restated an existing governmental plan, which has been maintained on a Volume Submitter Money Purchase Document, onto the Sungard Governmental Volume Submitter 401(a) Plan Document? Did you provide a 204(h) notice?