Exemption Under 411(e)(2)

[Randy Watson]

Does anyone know when a government plan had to be amended in order to benefit from 411(e)(2)? Was there a remedial amendment period for a government plan's compliance?

[mbozek]

411(e) exempted govt plans from the application of the ERISA amendments to the IRC. Dont know what you mean by remedial amenment period since govt plans are exempt from ERISA and under IRC 401(a)(5)(G) are exempt from nondiscrimination and participation requirements for Q plans. Pre ERISA the only forfeiture rules were the requirement that benefits had to be 100% vested when plan terminated, reg. 1.401-6 and that forfeitures must be used to reduce er contributions under the plan, 1.401-7.

[Randy Watson]

I read 411(e) to say that only those gov't plans that meet the vesting requirements from the application of 401(a)(4) and (7) on September 1, 1974 are exempt from the application of Section 411, which includes the anticutback rules. So, if a gov't plan did not meet the vesting requirements of 401(a)(7) on September 1, 1974, wouldn't that plan be subject to Section 411, including the anticutback rules? If so, when would that plan no longer be subject to the anitcutback rules...whenever they get around to preparing an amendment to comply with Section 411?

[mbozek]

Is your issue that a govt plan does not contain a provision that requires 100% vesting on termination? Under many state laws, e.g., NY, benefits under a govt plan cannot be reduced by future amendments to the plan.

Did the IRS issue a determination letter after 9/1/74? There has been little enforcement of the qualfied plan rules by the IRS on govt plans (RI being the exception beccause of its failure to limita benfits under 415). If the plan received a determination letter without the 401(a)(7) rule I dont see how the IRS could enforce the 411 rules against the plan.

[Randy Watson]

In 1974 the plan did not contain a provision that provided full vesting upon plan termination. The plan was subsequently amended to include that provision (years later). Would I be wrong to conclude that during the period of time between September 1, 1974 and the effective date of the amendment that the qualified plan would have been subject to the anticutback rules?

[mbozek]

As someone once said this is getting curiouser and curiouser. Since govt plans are exempt from ERISA there can be no claim for benefits by employees under the cutaback rules. So the issue is whether the plan was disqualified because it failed to have the termination provision required by IRC 401(a)(7). I dont know the anwser to that question but I question why it needs to be answered if the s/l for collecting taxes on the ees in the year the plan was disqualfied has expired. If the plan was corrected in a later yr then why is there an issue now other than whether the employees have non taxable benefits under the plan.

Please explain who would have a viable claim to such a latent violation of the tax law. Do you think that a participant would have a claim under state law for a violation of the IRC cutback rule by a goverment plan?

[Randy Watson]

I appreciate your effort in looking for an answer as to why I am asking this question. It must be driving you crazy. Unfortunately, I am not at liberty to get into the details, so as ridiculous as it sounds, please assume for a moment that participants can bring an action against a government employer for a 411(d)(6) violation.

With that in mind, if a plan did not meet the vesting requirements of 401(a)(7) on September 1, 1974, would that plan be subject to Section 411, including the anticutback rules? If so, when would that plan no longer be subject to the anitcutback rules...whenever they get around to preparing an amendment to comply with Section 411?

Thank you for your patience.

[mbozek]

There is no private right of action by taxpayers to enforce rights to benefits under the IRC, because the IRC only provides for the deduction of contributions to a retirement plan. I am unaware of the IRS enforcing the cutback rule against any public employer because of the general exemption of publc plans from IRC 411. My belief is that that the IRS would require that the 401(a)(7) language be added prospectively without any statement as to retroactivety to avoid the issues you are raising.

What you are asking is whether public employees would have a claim against a public plan to enforce a contract for additional benefits because of the plan's failure to contain the required language of IRC 401(a)(7). I think that the 11th Amendment would prevent any claim by participants for benefits based solely on IRC 411 or the claim would be rejectd for the more mundane failure to state a cause of action for which relief can be granted.