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Should governmental tax-qualified plan documents include ERISA languag


Guest Jhagan
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Guest Jhagan

We all know that governmental plans are not subject to ERISA. We administer plans for municipalities and have tried to create a customized template plan that extracts all the ERISA language that does not apply. There are a couple of problems with this: 1) The attorney fees that are associated with the writing and annual review of these plans are significant 2) finding a qualified attorney that understands the differences between a governmental plan and an ERISA plan 3)The pension administration software available is tailored towards ERISA plans and requires major customization to make work for non-ERISA plans.

Interested to know what other governmental plans are doing. I am finding out that the majority of plans - especially at the local government level - are just using the "boxed" erisa plans anyway.

I think this is especially true for those governments who have turned to participant directed investments for their 401(a).

Even though this opens the governmental agency to rules and testing that they are not required to do, it offers other advantages. We are interested in finding a Document Service that can provide annual IRC updates and help with plan amendments, but can only find through and ERISA plan.

Would appreciate any comments on this matter.

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One of the difficulties here is determining how large the market is for such plans. For many providers, it makes sense to draft a form ERISA document, because the potential market for that is very large -- and in fact, as you point out, includes even governmental plans which use ERISA-based documents. Thus, the cost per potential client for devising a plan is correspondingly small. The market for a non-ERISA plan is, of course, much smaller, and thus the cost/benefit ratio for the provider is much less favorable. So far, at least in my firm, we have not found enough of a market to make it economically feasible to develop a prototype, even though the bulk of our work is for governmental employee benefit plans.

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Employee benefits legal resource site

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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  • 2 months later...
Guest Robert Duffy

We use a governmental prototype (model)document that was drafted for us by McKay Hochman for all our governmental clients. This model 401(a) document has most of the ERISA language in it and the ERISA language is there at the request of many of the governmental agencies who are clients of McKay Hochman.

The ERISA language serves two purposes; 1.) It is used as a benchmark or measuring stick for compliance purposes. The govt. agency is not subject to ERISA or the testing & 5500 filing requirement, however they want to keep up with was in going on in the ERISA sector. Especially with the pending changes coming down in the L.R.M.'s from the G.U.S.T. Amendments. The ERISA language in their documents helps to keep them current with the changes in the law, and 2.) some govt. agencies might want to file for a favorable determination letter at a future date. Without the ERISA language in their document this could never happen.

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I would be a bit cautious about using ERISA language in a governmental plan. First place, inclusion of such language is not necessary in order to get an IRS determination letter for a governmental plan. Over the past 20 years, I have gotten numerous determination letters for governmental plans which complied only with those Internal Revenue Code requirements which apply to governmental plans, and not with other Code or ERISA requirements which would apply to private plans.

Second, in some instances, ERISA requirements may conflict with state law requirements. For example, routine ERISA language concerning vesting or termination of a plan may conflict with state court holdings that a governmental plan is forbidden by the state constitution from ever terminating or cutting back on future benefit accruals for existing employees. State laws concerning domestic relations orders may require a governmental plan to comply with an order that would not meet the requirements of a qualified domestic relations order. State laws concerning the investments of a governmental plan may forbid or require certain investments, in a way that would be incompatible with ERISA requirements.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Non-attorney opinion, but as an actuary involved in administration of govt. plans. I agree with Carol's comments. You can certainly elect to have many ERISA provisions in your govt. plan even though not required. But it does tend to complicate the day-to-day administration.

For example, some (many?) plans have EE contributions. The rules under IRC 411 for determining the "employee-provided benefit" do not apply to govt. plans, so why complicate the administration with those rules. They may even be in conflict with state law.

In my opinion, the most useful ERISA rule to extend to a govt. plan is the SPD requirement. The ERISA goal of disclosure and meaningful communication is worthwhile.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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  • 1 month later...
Guest Dan Gould

I work for a public higher education system governing board that offers its own 401(a) and 403(b) plans to its faculty and staff. It seems it is becoming more common for governments to set up 401(a)Plans. Here in Colorado, several public college systems, the governor's office and the legilature have their own 401(a) plans. I think that Florida has just created a DC Plan for its employees to replaces or provides an alternative to the current DB Plan.

I have tried to get a list from the IRS of 401(a) governemntal plans with the idea of getting us together for a conference dealing with mutual issues. They did not have such a list. I go to meetings that are primarily 401(k) sponsors and vendors to get informationand ideas, but I have to translate what is being said into what applies to my situation. I frankly am not confident that my translation is very good. And getting legal advice that I can rely on is difficult.Is there some way we could devise to get a list of Governmental Plan Sponsors so we could begin talking/meeting among ourselves?

Any ideas how to proceed?

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Well, this is kind of a meat-axe approach, but I have a fairly complete list of state retirement systems which you can get to by clicking on the link. You might want to start going through those and identifying the ones which have defined contribution plans.

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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Dan, you might want to contact NAGDCA,the National Association of Government Defined Compensation Administrators (previously the National Associatio of Deferred Compenation Administrators) at (606) 231-1904. This is well developed national association that is beginning to do regional meetings.

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Our company works in Pennsylvania and we deal exclusively with qualified governmental pension plans. Pennsylvania has about 2900 qualified DB and DC plans. For many of our clients, we have written plan documents that includes only the applicable code sections. (This includes the limited applicability of the GUST amendments.) We first started doing this about 12 years ago. We believe that it is important for a governmental plan not to adopt an ERISA prototype.

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