[Federal Register Volume 76, Number 216 (Tuesday, November 8, 2011)]
[Proposed Rules]
[Pages 69172-69188]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-28853]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-157714-06]
RIN 1545-BG43
Determination of Governmental Plan Status
AGENCY: Internal Revenue Service (IRS), Department of the Treasury.
ACTION: Advance notice of proposed rulemaking.
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SUMMARY: The Treasury Department and IRS anticipate issuing regulations
under section 414(d) of the Internal Revenue Code (Code) to define the
term ``governmental plan.'' This document describes the rules that the
Treasury Department and IRS are considering proposing relating to the
determination of whether a plan is a governmental plan within the
meaning of section 414(d) and contains an appendix that includes a
draft notice of proposed rulemaking on which the Treasury Department
and IRS invite comments from the public. This document applies to
sponsors of, and participants and beneficiaries in, employee benefit
plans that are determined to be governmental plans.
DATES: Written or electronic comments must be received by February 6,
2012.
ADDRESSES: Send submissions relating to the section 414(d) draft
general regulations to: CC:PA:LPD:PR (REG-157714-06), room 5203,
Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington
DC, 20044. Submissions may be hand delivered Monday through Friday,
between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-157714-06),
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,
Washington, DC.
Alternately, taxpayers may submit comments relating to the section
414(d) draft general regulations electronically via the Federal
eRulemaking Portal at www.regulations.gov (IRS-REG-157714-06).
FOR FURTHER INFORMATION CONTACT: Concerning the ANPRM, Pamela R.
Kinard, at (202) 622-6060; concerning submission of comments, Richard
A. Hurst, at [email protected] or at (202) 622-7180
(not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document describes rules that the Treasury Department and IRS
are considering proposing and contains a draft notice of proposed
rulemaking (in the Appendix to this ANPRM) under section 414(d) of the
Internal Revenue Code (Code). Under the draft notice of proposed
rulemaking (in the Appendix to this ANPRM), the rules would provide
general guidance relating to the determination of whether a retirement
plan is a governmental plan within the meaning of section 414(d)
(section 414(d) draft general regulations). The principles described in
this ANPRM could also apply for purposes of certain parallel terms in
sections 403(b) and 457 of the Code.
Section 414(d) of the Code provides that the term ``governmental
plan'' generally means a plan established and maintained for its
employees by the Government of the United States, by the government of
any State or political subdivision thereof, or by any agency or
instrumentality of any of the foregoing. See sections 3(32) and
4021(b)(2) of the Employee Retirement Income Security Act of 1974
(ERISA) for definitions of the term ``governmental plan,'' which govern
respectively for purposes of title I and title IV of ERISA.\1\
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\1\ The three definitions of the term ``governmental plan'' are
essentially the same. The only difference is that, in defining the
term ``governmental plan,'' section 3(32) of ERISA uses the phrase
``established or maintained,'' whereas section 414(d) of the Code
and section 4021(b) of ERISA use the term ``established and
maintained.''
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The term ``governmental plan'' also includes any plan to which the
Railroad Retirement Act of 1935 or 1937 (49 Stat. 967, as amended by 50
Stat. 307) applies and which is financed by contributions
[[Page 69173]]
required under that Act and any plan of an international organization
which is exempt from taxation by reason of the International
Organizations Immunities Act (59 Stat. 669). See section 414(d)(2) of
the Code.
Section 414(d) was amended by the Pension Protection Act of 2006,
Public Law 109-280 (120 Stat. 780) (PPA '06) to include certain plans
of Indian tribal governments and related entities.\2\ Section 906(a)(1)
of PPA '06 provides that the term ``governmental plan'' includes a plan
which is established and maintained by an Indian tribal government (as
defined in section 7701(a)(40)), a subdivision of an Indian tribal
government (determined in accordance with section 7871(d)), or an
agency or instrumentality of either (ITG), and all the participants of
which are employees of such entity substantially all of whose services
as such an employee are in the performance of essential governmental
functions but not in the performance of commercial activities (whether
or not an essential governmental function).
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\2\ Section 906(a) of PPA '06 made similar amendments to
sections 3(32) and 4021(b)(2) of ERISA.
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Neither section 414(d) of the Code, section 3(32) of ERISA, nor
section 4021(b)(2) of ERISA define key terms relating to governmental
plans, including the terms ``established and maintained,'' ``political
subdivision,'' ``agency,'' and ``instrumentality.'' Currently, there
are no regulations interpreting section 414(d). Revenue Ruling 89-49
(1989-1 CB 117), see Sec. 601.601(d)(2), sets forth a facts and
circumstances analysis for determining whether a retirement plan is a
governmental plan within the meaning of section 414(d).\3\ This
analysis is used by the IRS in issuing letter rulings.
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\3\ See also Rev. Rul. 57-128 (1957-1 CB 311), see Sec.
601.601(d)(2), which provides guidance on determining when an entity
is a governmental instrumentality for purposes of the exemption from
employment taxes under section 3121(b)(7) and 3306(c)(7).
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Governmental plans are subject to different rules than retirement
plans of nongovernmental employers. Governmental plans are excluded
from the provisions of titles I and IV of ERISA. In addition,
governmental plans receive special treatment under the Code. These
plans are exempt from certain qualification requirements and they are
deemed to satisfy certain other qualification requirements under
certain conditions. As a result, the principal qualification
requirements for a tax-qualified governmental plan \4\ are that the
plan--
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\4\ A special rule applies to contributory plans of certain
governmental entities. Section 414(h)(2) provides that, for a
qualified plan established by a State government or political
subdivision thereof, or by any agency or instrumentality of the
foregoing, where the contributions of the governmental employer are
designated as employee contributions under section 414(h)(1) but the
governmental employer picks up the contributions, the contributions
picked up will be treated as employer contributions.
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Be established and maintained by the employer for the
exclusive benefit of the employer's employees or their beneficiaries;
Provide definitely determinable benefits;
Be operated pursuant to its terms;
Satisfy the direct rollover rules of section 401(a)(31);
Satisfy the section 401(a)(17) limitation on compensation;
Comply with the statutory minimum required distribution
rules under section 401(a)(9);
Satisfy the pre-ERISA vesting requirements under section
411(e)(2); \5\
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\5\ Section 411(e)(2) states that a plan described in section
411(e)(1) is treated as meeting the requirements of section 411 if
the plan meets the vesting requirements resulting from the
application of section 401(a)(4) and (a)(7) as in effect on
September 1, 1974.
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Satisfy the section 415 limitations on benefits, as
applicable to governmental plans; and
Satisfy the prohibited transaction rules in section 503.
State and local governments, political subdivisions thereof, and
agencies or instrumentalities thereof are generally not permitted to
offer cash or deferred arrangements under section 401(k). However, an
ITG is permitted to offer a cash or deferred arrangement under section
401(k).
For further background, see the ``Background'' section of the
preamble in the section 414(d) draft general regulations in the
Appendix to this ANPRM under the headings, ``Exclusion of Governmental
Plans from ERISA,'' ``Exemption of Governmental Plans from Certain
Qualified Plan Rules,'' and ``Exemption of Governmental Plans from
Other Employee Benefit Rules Relating to Retirement Plans.''
Over the past several years, the IRS has been coordinating with the
Department of Labor (DOL) and Pension Benefit Guaranty Corporation
(PBGC) (the ``Agencies'') on governmental plan determinations. Although
the anticipated proposed regulations would only be applicable for
purposes of section 414(d), the DOL and PBGC were consulted when
drafting this proposal. DOL and PBGC agreed that it would be
advantageous for the Agencies and the regulated community for there to
be coordinated criteria for determining whether a plan is a
governmental plan within the meaning of section 414(d) of the Code,
section 3(32) of ERISA, and section 4021(b)(2) of ERISA. See the
``Background'' section of the preamble in the section 414(d) draft
general regulations in the Appendix to this ANPRM under the heading,
``Interagency Coordination on Governmental Plan Determinations.''
The Treasury Department and the IRS have determined to seek public
comment on the draft proposed regulations in the Appendix to this ANPRM
in advance of issuing a notice of proposed rulemaking. In light of the
interaction of the governmental plan definitions in the Code and ERISA,
a copy of the comments will be forwarded to DOL and PBGC.
Explanation of Provisions
Attached to the Appendix to this ANPRM is a draft notice of
proposed rulemaking. The draft regulations include proposed rules, a
preamble, and a request for comments. The Treasury Department and IRS
invite the public to comment on the rules that the Treasury Department
and IRS are considering proposing, which would generally define the
term ``governmental plan'' within the meaning of section 414(d), as
well as other key related terms, including ``State,'' ``political
subdivision of a State,'' and ``agency or instrumentality of a State or
political subdivision of a State.''
In determining whether an entity is an agency or instrumentality of
the United States or an agency of instrumentality of a State or
political subdivision of a State, the anticipated guidance would
provide a facts and circumstances analysis. The factors used in these
analyses are drawn from the factors historically used in governmental
plan determinations, including Rev. Ruls. 57-128 and 89-49. The
anticipated guidance would provide several examples illustrating the
application of the facts and circumstances tests. See the ``Explanation
of Provisions'' section in the section 414(d) draft general regulations
in the Appendix to this ANPRM under the headings, ``Definitions of the
United States and agency or instrumentality of the United States'' and
``Definition of agency or instrumentality of a State or a political
subdivision of a State.'' See Sec. 601.601(d)(2).
The anticipated proposed regulations would include numerous factors
for determining whether an entity is an agency or instrumentality of a
State or a political subdivision of a State. The section 414(d) draft
proposed regulations in the Appendix to this ANPRM would categorize
these factors
[[Page 69174]]
into major factors and other factors. The section 414(d) draft general
regulations would also request comments from the public on whether the
final regulations should eliminate the distinction between main and
other factors. In addition, the section 414(d) draft general
regulations would request comments on the ordering and application of
main and other factors; for example, whether, as an alternative to the
ranking of major factors and other factors, the regulations could
provide a safe harbor standard focusing on control and fiscal
responsibility under which the entity would be treated as an agency or
instrumentality of a State or a political subdivision of a State. For
further explanation of the safe harbor standard, see the ``Comments and
Public Hearing'' section in the preamble of the section 414(d) draft
general regulations, which is located in the Appendix to this ANPRM.
The anticipated proposed regulations do not address the special
rules that apply in determining whether a plan of an Indian tribal
government is a governmental plan within the meaning of section 414(d).
That topic would be reserved in the proposed regulations and is
addressed in an ANPRM (REG-133223-08) that is being published elsewhere
in this issue of the Federal Register.
The anticipated proposed regulations would provide rules for
determining whether a governmental entity has established and
maintained a plan for purposes of section 414(d). The anticipated
proposed regulations might provide that a plan is established and
maintained for the employees of a governmental entity if: (1) The plan
is established and maintained by an employer within the meaning of
Sec. 1.401-1(a)(2), (2) the employer is a governmental entity, and (3)
the only participants covered by the plan are employees of that
governmental entity. The anticipated proposed regulations might also
provide rules covering circumstances involving a change in status of an
entity (that is, when a private entity becomes a governmental entity or
when a governmental entity becomes a private entity) due to an
acquisition or asset transfer. See the ``Explanation of Provisions''
section in the section 414(d) draft general regulations in the Appendix
to this ANPRM under the heading, ``Requirements for establishing and
maintaining a section 414(d) governmental plan.''
Recognizing that the guidance might affect numerous governmental
plan participants and their beneficiaries, the anticipated proposed
regulations request comments on transition rules, including
transitional relief for governmental plans that permitted participation
of a small number of former employees in their plans. See the
``Comments and Public Hearing'' section in the preamble of the section
414(d) draft general regulations that is located in the Appendix to
this ANPRM.
Request for Comments
Before the notice of proposed rulemaking is issued, consideration
will be given to any written comments that are submitted timely
(preferably a signed original and eight (8) copies) to the IRS. All
comments will be available for public inspection and copying. Copies of
the comments will be provided to the DOL and PBGC.
The IRS and Department of Treasury plan to schedule a public
hearing on the ANPRM. That hearing will be scheduled and announced at a
later date. In addition to a public hearing, the Treasury Department
and IRS anticipate scheduling ``Town Hall'' meetings in order to obtain
comments from the public on the section 414(d) draft general
regulations. It is expected that these ``Town Hall'' meetings will take
place in different locations across the country. Participants will be
encouraged to pre-register for the meetings. Information relating to
these ``Town Hall'' meetings, including dates, times, locations,
registration, and the procedures for submitting written and oral
comments, will be available on the IRS Web site relating to
governmental plans at http://www.irs.gov/retirement/article/0,,id=181779,00.html.
Drafting Information
The principal author of this advance notice of proposed rulemaking
is Pamela R. Kinard, Office of the Chief Counsel (Tax-exempt and
Government Entities), however, other personnel from the IRS and
Treasury Department participated in its development.
Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
Appendix
The following is draft language for a notice of proposed rulemaking
that would set forth rules relating to the determination of whether a
plan is a governmental plan within the meaning of section 414(d). The
IRS and Treasury release this draft language in order to solicit
comments from the governmental plans community:
Background
This document contains proposed regulations under section 414(d) of
the Internal Revenue Code (Code). These regulations, when finalized,
would provide guidance relating to the determination of whether a
retirement plan is a governmental plan within the meaning of section
414(d). The definition of a governmental plan under section 414(d)
applies for purposes of part I of subchapter D of chapter 1 of subtitle
A (Income Taxes) of the Code (sections 401 through 420) and certain
other Code provisions that refer to section 414(d) (such as sections
72(t)(10), 501(c)(25)(C), 4975(g)(2), 4980B(d)(2), 9831(a)(1), and
9832(d)(1)). It is expected that the principles set forth in these
regulations would generally also apply for purposes of sections 403(b)
and 457.
Statutory Definition of Governmental Plan
Both the Code and the Employee Retirement Income Security Act of
1974 (ERISA) define the term ``governmental plan.'' Section 414(d) of
the Code provides that the term ``governmental plan'' generally means a
plan established and maintained for its employees by the Government of
the United States, by the government of any State or political
subdivision thereof, or by any agency or instrumentality of any of the
foregoing. See sections 3(32) and 4021(b)(2) of ERISA for parallel
definitions of the term governmental plan, discussed under the heading,
``Exclusion of Governmental Plans from ERISA.''
The term ``governmental plan'' also includes any plan to which the
Railroad Retirement Act of 1935 or 1937 (49 Stat. 967, as amended by 50
Stat. 307) applies and which is financed by contributions required
under that Act and any plan of an international organization which is
exempt from taxation by reason of the International Organizations
Immunities Act, Public Law 79-291 (59 Stat. 669). Section 414(d) was
amended by the Pension Protection Act of 2006, Public Law 109-280 (120
Stat. 780) (PPA '06) to include certain plans of Indian tribal
governments.\6\ See Notice 2006-89 (2006-43 IRB 772), see Sec.
601.601(d)(2), for guidance relating to plans
[[Page 69175]]
established and maintained by Indian tribal governments.\7\ These
proposed regulations do not provide any guidance concerning the special
provisions in section 414(d) relating to the Railroad Retirement Act of
1935 or 1937, the International Organizations Immunities Act, or Indian
tribal governments.
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\6\ Section 906(a)(1) of PPA '06 provides that the term
``governmental plan'' includes a plan which is established and
maintained by an Indian tribal government (as defined in section
7701(a)(40)), a subdivision of an Indian tribal government
(determined in accordance with section 7871(d)), or an agency or
instrumentality of either, and all the participants of which are
employees of such entity substantially all of whose services as such
an employee are in the performance of essential governmental
functions but not in the performance of commercial activities
(whether or not an essential government function). Section 906(a) of
PPA '06 made similar amendments to sections 3(32) and 4021(b) of
ERISA.
\7\ See also Notice 2007-67 (2007-35 IRB 467), see Sec.
601.601(d)(2) (extending transitional relief for plans of Indian
tribal governments to comply with the requirements of section 906 of
PPA '06).
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Application of Section 414(d)
These proposed regulations are only applicable for purposes of
section 414(d), and not for any other purpose under the Code.\8\
However, the section 414(d) definition of ``governmental plan'' applies
for other sections of the Code, including:
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\8\ However, as indicated earlier, it is expected that the
principles set forth in these regulations would also be taken into
account for purposes of sections 403(b) and 457.
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Section 72(t)(10)(A) (exception to the early withdrawal
tax for certain distributions from a defined benefit governmental
plan);
Section 457(e)(17) (special rules for: (1) Direct trustee-
to-trustee transfers from a section 457 deferred compensation plan to a
section 414(d) governmental plan in order to purchase permissive
service credit under section 414(n)(3)(A) or (2) the repayments of
cashouts under governmental plans);
Section 501(c)(25)(C)(ii) (exempting section 414(d)
governmental plans from taxation);
Section 503(a)(1) (applying the prohibited transactions
rules in section 503 to governmental plans as defined in section
4975(g)(2))
Section 818(a)(6)(A) (defining the term ``pension plan
contract'');
Section 1400Q(d)(2)(A)(ii) (special timing rule for
section 414(d) governmental plans to make certain conforming
amendments);
Section 4972(d)(1)(B) (exempting section 414(d)
governmental plans from the excise tax on nondeductible contributions
to a qualified employer plan);
Section 4975(g)(2) (exempting section 414(d) governmental
plans from the prohibited transaction rules of section 4975);
Section 4980(c)(1)(B) (exempting section 414(d)
governmental plans from the tax on the reversion of qualified plan
assets to an employer under section 4980);
Section 4980B(d)(2) (exempting section 414(d) governmental
plans from the COBRA requirements under section 4980B);
Section 4980F(f)(2) (exempting section 414(d) governmental
plans from the requirement to provide a notice required under section
204(h) of ERISA);
Section 6057(c)(2) (providing rules relating to the
voluntary submission of annual registration statements by section
414(d) governmental plans); and,
Sections 9831(a)(1) and 9832(d)(2) (exempting section
414(d) governmental plans from the group health plan requirements).
The definitions and rules also apply for purposes of section
101(h)(1)(A) (special rule exempting governmental plan survivor
benefits attributable to service of a public safety officer killed in
the line of duty).
Currently, there are no regulations interpreting section 414(d).
Neither section 414(d) of the Code nor ERISA defines key terms relating
to governmental plans, including the terms ``established and
maintained,'' ``political subdivision,'' ``agency,'' and
``instrumentality.''
Executive Order 13132
Executive Order 13132 requires that Federal departments and
agencies engage in consultation procedures in certain circumstances
where regulations are issued which have a substantial direct effect on
States. While these regulations when issued as final regulations would
not have such a substantial direct effect, the IRS and Treasury
Department have followed similar procedures, including issuance not
only of these proposed regulations, but also an advance notice of these
regulations which was published (date to be provided) in the Federal
Register.
Judicial Determinations of Governmental Entity Status
Historically, courts have used the test in NLRB v. Natural Gas
Utility District of Hawkins County, Tennessee, 402 U.S. 600 (1971), in
determining whether an entity is an agency or instrumentality of a
State or a political subdivision of a State. In Hawkins County, the
Supreme Court interpreted the term ``political subdivision'' for
purposes of 29 U.S.C. 152(2) (section 2(2) of the National Labor
Relations Act (NLRA), as amended by the Labor-Management Relations
Act).\9\ Although the Supreme Court in Hawkins County analyzed whether
the employer at issue was a political subdivision for purposes of the
NLRA, courts use the same analysis for determining whether an entity is
an agency or instrumentality of a State or a political subdivision of a
State for purposes of ERISA.\10\ The two-prong test in Hawkins County
analyzes whether the entity has been ``(1) Created directly by the
state, so as to constitute departments or administrative arms of the
government, or (2) administered by individuals who are responsible to
public officials or to the general electorate.'' Hawkins County, 402
U.S. at 604-05. In addition to this two-prong test, the Supreme Court
also analyzed other factors, including: Whether the utility had broad
powers to accomplish its public purpose; whether the utility's property
and revenue were exempt from state and local taxes (as well as whether
its bonds were tax-exempt); whether the utility had the power of
eminent domain; whether the utility was required to maintain public
records; whether the utility's commissioners were appointed by an
elected county judge; and whether the commissioners could be removed by
the State of Tennessee pursuant to State procedures for removal of
public officials. Many of these factors are similar to the factors used
in determining whether an entity is an agency or instrumentality of a
State or a political subdivision of a State under these proposed
regulations.
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\9\ 29 U.S.C. 152(2) provides that the term ``employer''
includes any person acting as an agent of an employer, directly or
indirectly, but shall not include the United States or any wholly
owned Government corporation, or any Federal Reserve Bank, or any
State or political subdivision thereof, or any person subject to the
Railway Labor Act, as amended from time to time, or any labor
organization (other than when acting as an employer), or anyone
acting in the capacity of officer or agent of such labor
organization.
\10\ ``The NLRB guidelines are a useful aid in interpreting
ERISA's governmental exemption, because ERISA, like the National
Labor Relations Act, `represent[s] an effort to strike an
appropriate balance between the interests of employers and labor
organizations.' '' Rose v. Long Island Railroad Pension Plan, 828
F.2d 910, 916 (2nd Cir. 1987), cert. denied, 485 U.S. 936 (1988)
(quoting H.R. Rep. No. 533, reprinted in 1974 USCCAN at 4647). See
also, Shannon v. Shannon, 965 F.2d 542, 547 (7th Cir. 1992), cert.
denied, 506 U.S. 1028 (1992) (stating that the proper test for
determining whether an entity is an agency or instrumentality of a
State or political subdivision for purposes of ERISA is the Hawkins
test), Koval v. Washington County Redevelopment Authority, 574 F.3d
238, 242 (3rd Cir. 2009) (stating that the Hawkins test is the most
fitting analysis for determining whether an entity is a political
subdivision), and Brooks v. Chicago Housing Authority, No. 89-C-
9304, 1990 WL 103572 at 1, 1990 U.S. Dist. LEXIS 8233 at 3 (N.D.
Ill. July 5, 1990) (applying the Hawkins test).
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In determining whether an entity is an agency or instrumentality of
the United States, courts either apply a facts and circumstances
analysis or look to the relationship between the entity and its
employees. In Alley v. Resolution Trust Corporation, 984 F.2d 1201
(DCCir. 1993), in analyzing whether the Federal Asset Disposition
Association (FADA), a savings and loan association established by the
Federal Home Loan Bank Board, was a Federal instrumentality for
[[Page 69176]]
governmental plan purposes, the court focused on the employment
relationship between the entity and its employees.\11\ In looking at
the employer-employee relationship, the Alley court concluded that FADA
functioned more like a private enterprise than a governmental agency in
the area of its employment relations. ``Measured by the terms and
conditions of their employment, FADA personnel far more closely
resembled private sector employees than they did government workers.
Like employees of `ordinary' Federally chartered S&Ls, FADA's employees
were outside the civil service system, and were not subject to the
personnel rules or restrictions on salaries and benefits imposed
generally on Federal employees.'' \12\
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\11\ ``We focus our attention * * * on what should be the core
concern for ERISA purposes--the nature of an entity's relationship
to and governance of its employees.'' Alley v. Resolution Trust
Corporation, 984 F.2d at 1206, n. 11.
\12\ Alley v. Resolution Trust Corporation, 984 F.2d at 1206.
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However, in Berini v. Federal Reserve Bank of St. Louis, Eighth
District, 420 F.Supp.2d 1021 (E.D. Mo. 2005), the court reviewed
administrative and judicial authority in determining whether an entity
is a Federal agency or instrumentality and applied a multi-factor test
in determining whether the employee benefit plans maintained by the
Federal Reserve System are governmental plans within the meaning of
section 3(32) of ERISA. The Berini test was based on the six factors in
Rev. Rul. 57-128 (1957-1 CB 311), see Sec. 601.601(d)(2), which was
also the test applied by the court in Rose v. Long Island Railroad
Pension Plan, 828 F.2d 910, 918 (2nd Cir. 1987), cert. denied, 485 U.S.
936 (1988). Factors weighed by the Berini court included that the
Federal reserve banks were established directly by Congressional
legislation to perform an important governmental function (to increase
control of the nation's currency and banking system), the banks exist
only by an enabling statute, they possess only the powers granted by
the legislation, the private interests involved do not have the typical
interests of an owner, and the banks are controlled by the Federal
Reserve Board of Governors, which is a governmental agency.\13\
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\13\ Berini v. Federal Reserve Bank of St. Louis, 420 F.Supp.2d
at 1026-29.
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Agency Guidance Regarding Governmental Entity Status
Revenue Ruling 57-128 provides guidance on when an entity is a
governmental instrumentality for purposes of the exemption from
employment taxes under sections 3121(b)(7) and 3306(c)(7). The revenue
ruling lists the following factors to be considered in determining
whether an organization is an instrumentality of one or more States or
political subdivisions thereof: (1) Whether the organization is used
for a governmental purpose and performs a governmental function; (2)
whether performance of its function is on behalf of one or more States
or political subdivisions; (3) whether there are any private interests
involved, or whether the States or political subdivisions involved have
the powers and interests of an owner; (4) whether control and
supervision of the organization is vested in public authority or
authorities; (5) whether express or implied statutory authority or
other authority is necessary for the creation and/or use of such an
instrumentality, and whether such authority exists; and (6) the degree
of the organization's financial autonomy and the source of its
operating expenses.
Revenue Ruling 89-49 (1989-1 CB 117), see Sec. 601.601(d)(2),
provides guidance for determining whether a retirement plan maintained
by an organization is a governmental plan within the meaning of section
414(d). The revenue ruling lists several factors for determining
whether a sponsoring organization is an agency or instrumentality of
the United States or any State or political subdivision thereof. While
the factors in Rev. Rul. 89-49 are similar to the factors listed in
Rev. Rul. 57-128, Rev. Rul. 89-49 focuses more on the degree of control
that the Federal or State government has over the organization's
everyday operations. Other factors considered include: whether there is
specific legislation creating the organization; the source of funds for
the organization; the manner in which the organization's trustees or
operating board are selected; and whether the applicable government
unit considers the employees of the organization to be employees of the
applicable government unit. Rev. Rul. 89-49 provides that satisfaction
of one or all of the factors is not necessarily determinative of
whether an organization is a governmental entity. See Sec.
601.601(d)(2)(ii)(b).
In Rev. Rul. 89-49, citizens of a municipality organized a
volunteer fire company. The company was incorporated under its State
laws as a nonprofit corporation, and the company was managed under the
exclusive control of a board of trustees elected by the volunteer
firefighters. Area municipalities, including the municipality that
created the company, entered into contracts with the company to receive
fire protection services. Under the contracts, it was agreed that the
operations of the volunteer fire company would be under the exclusive
control of the board of trustees. While the municipalities made
payments for fire protection services to the volunteer fire company
pursuant to these contracts, the municipalities did not contribute to
the company's retirement plan, and the employees of the company were
not considered employees of the State or any of the participating
municipalities. The ruling concludes that the retirement plan
established and maintained by the volunteer fire company is not a
governmental plan within the meaning of section 414(d) because the
degree of control that the participating municipalities exert over the
volunteer fire company is minimal.
Exclusion of Governmental Plans From ERISA
Section 4(b)(1) of ERISA provides that title I of ERISA does not
apply to an employee benefit plan that is a governmental plan as
defined in section 3(32) of ERISA. Section 3(32) of ERISA generally
provides that the term ``governmental plan'' means a plan established
or maintained for its employees by the Government of the United States,
by the government of any State or political subdivision thereof, or by
any agency or instrumentality of any of the foregoing.\14\ The ERISA
section 3(32) definition of a governmental plan also includes any plan
to which the Railroad Retirement Act of 1935 or 1937 applies, and which
is financed by contributions required under that Act and any plan of an
international organization which is exempt from taxation under the
provisions of the International Organizations Immunities Act. Section
906 of PPA '06 amended section 3(32) of ERISA to include in the
definition of governmental plan a plan which is established and
maintained by an Indian tribal government (as defined in section
7701(a)(40)), a subdivision of an Indian tribal government (determined
in accordance with section 7871(d)), or an agency or instrumentality of
either. Under this definition, all of the participants of which are
employees of such entity substantially all of whose services as such an
employee are in the
[[Page 69177]]
performance of essential governmental functions but not in the
performance of commercial activities (whether or not an essential
government function).
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\14\ In defining the term ``governmental plan,'' section 3(32)
of ERISA uses the phrase ``established or maintained,'' whereas
section 414(d) of the Code and section 4021(b) of ERISA use the term
``established and maintained.'' For further discussion, see the
Explanation of Provisions section of the preamble under the heading,
``Requirements for establishing and maintaining a section 414(d)
governmental plan.''
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Section 4021(b)(2) of ERISA provides that title IV of ERISA does
not apply to any plan established and maintained for its employees by
the Government of the United States, by the government of any State or
political subdivision thereof, or by any agency or instrumentality of
any of the foregoing, or to which the Railroad Retirement Act of 1935
or 1937 applies and which is financed by contributions required under
that Act. Similar to section 3(32) of ERISA, section 4021(b) of ERISA
was amended by section 906 of PPA '06 to include certain plans of
Indian tribal governments in the definition of governmental plan for
purposes of section 4021(b) of ERISA.
Neither the DOL nor the PBGC has issued regulations interpreting
the terms of sections 3(32) and 4021(b) of ERISA. Both agencies have,
however, provided guidance for specific entities in the form of
administrative determinations, and advisory opinions or other opinion
letters. The IRS, the Department of Labor (DOL), and the Pension
Benefit Guaranty Corporation (PBGC) have generally applied a facts and
circumstances approach in providing governmental plan
determinations.\15\ For example, the IRS issues private letter rulings
relating to governmental plan status using a facts and circumstances
analysis.
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\15\ The DOL issues advisory opinions. The PBGC issues
administrative determinations and opinion letters. The IRS issues
letter rulings relating to section 414(d) governmental plans. For
this purpose, a letter ruling is a written statement issued to a
taxpayer by the IRS that interprets and applies tax laws or any
nontax laws applicable to employee benefit plans to the taxpayer's
specific set of facts. See section 3.02 of Rev. Proc. 2011-4 (2011-1
IRB 123, 127), see Sec. 601.601(d)(2).
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Exemption of Governmental Plans From Certain Qualified Plan Rules
Governmental plans under Code section 414(d) are exempt from
certain qualification requirements and are deemed to satisfy certain
other qualification requirements under certain conditions. For example,
the nondiscrimination and minimum participation rules do not apply to
governmental plans. Section 1505 of the Taxpayer Relief Act of 1997,
Public Law 105-34 (111 Stat. 788, 1063) (TRA '97), amended sections
401(a)(5)(G) and 401(a)(26)(G) of the Code to provide that the minimum
participation standards and nondiscrimination requirements of section
410 and the additional participation requirements under section
401(a)(26)(G) do not apply to State or local governmental plans.\16\
Section 1505 of TRA '97 also amended section 401(k)(3)(G) of the Code
to provide that certain State and local governmental plans are treated
as meeting the requirements of the average deferral percentage test of
section 401(k)(3) and the average contribution percentage test of
section 401(m)(2).\17\
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\16\ In addition, section 1505(a)(3) of TRA '97 amended section
410(c)(2) to provide that all governmental plans within the meaning
of section 414(d) are treated as satisfying the nondiscrimination
requirements of section 410.
\17\ A State or local government, political subdivision, or
agency or instrumentality thereof, is not permitted to establish and
maintain a section 401(k) plan. See section 401(K)(4)(B)(ii). There
is an exception for a grandfathered section 401(k) plan, which is
generally a plan established by a governmental unit (a State or
local government or political subdivision thereof) before May 7,
1986. See Sec. 1.401(k)-1(e)(4).
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Section 861 of PPA '06 exempts all governmental plans (as defined
in section 414(d)) from the nondiscrimination and minimum participation
requirements of sections 401(a)(5)(G) and 401(a)(26)(G) of the Code, as
well as the nondiscrimination and participation requirements applicable
to qualified cash or deferred arrangements under section 401(k)(3)(G)
of the Code.
In addition to the nondiscrimination requirements, the Code
provides other exemptions for governmental plans:
Section 401(a)(10)(B)(iii), which provides that the top
heavy requirements of section 416 do not apply to a governmental plan.
Section 410(c)(1)(A), which provides that the minimum
participation provisions of section 410 do not apply to a governmental
plan.
Section 411(e), which provides that a governmental plan is
treated as satisfying the requirements of section 411 if the plan meets
the pre-ERISA vesting requirements.
Section 412(e)(2)(C), which provides that the minimum
funding standards of section 412 do not apply to a governmental plan.
Section 417, which provides rules relating to qualified
joint and survivor annuities and qualified preretirement survivor
annuities.
Section 415 also provides a number of special rules for
governmental plans. The special rules include section 415(b)(11) (the
100 percent of a participant's average high 3 compensation limitation
does not apply), section 415(b)(2)(C) (the reduced limitation to the
annual benefit payable beginning before age 62 and the reduction in the
dollar limitation to the annual benefit payable for participation or
services of less than 10 years do not apply to disability or survivor
benefits received from a governmental plan), section 415(m) (benefits
provided under a qualified governmental excess benefit arrangement are
not taken into account in determining the section 415 benefit
limitations under a section 414(d) governmental plan), and section
415(n) (permissive service credit).\18\
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\18\ See also Notice 89-23 (1989-1 CB 654), and Notice 96-64
(1996-2 CB 229), see Sec. 601.601(d)(2), for guidance relating to
the nondiscrimination rules that apply to qualified plans maintained
by governments.
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As a result, the principal qualification requirements for a tax-
qualified governmental plan \19\ are the requirements that the plan--
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\19\ A special rule applies to contributory plans of certain
governmental entities. Section 414(h)(2) provides that, for a
qualified plan established by a State government or political
subdivision thereof, or by any agency or instrumentality of the
foregoing, where the contributions of the governmental employer are
designated as employee contributions under section 414(h)(1) but the
governmental employer picks up the contributions, the contributions
picked up will be treated as employer contributions.
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Be established and maintained by the employer for the
exclusive benefit of the employer's employees or their beneficiaries,
Provide definitely determinable benefits,
Satisfy the direct rollover rules of sections 401(a)(31)
and 402(f),
Be operated pursuant to its terms,
Satisfy the section 401(a)(17) limitation on compensation,
Comply with the statutory minimum required distribution
rules under section 401(a)(9),
Satisfy the pre-ERISA vesting requirements under section
411(e)(2),
Satisfy the section 415 limitations on benefits, as
applicable to governmental plans, and
Satisfy the prohibited transaction rules in section 503.
State and local governments, political subdivisions thereof, and
agencies or instrumentalities thereof are generally not permitted to
offer cash or deferred arrangements under section 401(k). Instead, they
can offer a somewhat similar elective contribution program through an
eligible governmental section 457(b) plan to which section 457(g)
applies. In addition, section 403(b) includes special rules for plans
covering public school teachers, including rules under which, in
conjunction with an eligible governmental section 457(b) plan, the
maximum dollar amount of the elective contribution for a public school
teacher is in effect double the maximum for other public or private
employees.
[[Page 69178]]
Exemption of Governmental Plans From Other Employee Benefit Rules
Relating to Retirement Plans
The Code and regulations also provide that plans of governmental
entities are treated differently than plans of non-governmental
entities with respect to certain requirements for section 403(b) plans
and eligible section 457(b) plans, including:
Section 403(b)(1)(A)(ii), which provides that the
exclusion allowance under section 403(b)(1) applies to employees who
perform services for a public school of a State, a political
subdivision of a State, or an agency or instrumentality of any one or
more of the foregoing.
Section 403(b)(12)(C), which provides that the
nondiscrimination requirements of section 403(b)(12) (other than the
compensation limitations of section 401(a)(17)) do not apply to a State
or local governmental plan within the meaning of section 414(d).
Section 457(f)(2)(E), under which section 457(f) (relating
to nonqualified deferred compensation) does not apply to a qualified
governmental excess benefit arrangement under section 415(m).
Section 457(e)(1)(B), which includes as an eligible
employer a State, political subdivision, or agency or instrumentality
thereof and any tax-exempt organization other than a governmental unit.
Section 457(g), which provides that a deferred
compensation plan maintained by a State, political subdivision of a
State, or any agency or instrumentality thereof is not treated as an
eligible section 457(b) plan unless the assets and income of the plan
are held in trust for the exclusive benefit of plan participants and
beneficiaries.
Section 402(c)(8)(B)(v), which provides that an eligible
section 457(b) governmental plan is an eligible retirement plan for
purposes of the rollover rules under section 402(c), so that payments
from an eligible section 457(b) governmental plan can be rolled over to
another eligible retirement plan, such as a qualified plan or an IRA,
and payments from an eligible retirement plan can be rolled over into
an eligible section 457(b) governmental plan.\20\ An eligible section
457(b) plan of a nongovernmental tax-exempt entity is not eligible for
this rollover treatment.
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\20\ Section 402(c)(8)(B) defines an eligible retirement plan as
an individual retirement account under section 408(a), an individual
retirement annuity under section 408(b), a qualified plan, a section
403(a) annuity, a section 403(b) plan, and an eligible section
457(b) governmental plan.
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Legislative History of ERISA
The legislative history of ERISA and its predecessor bills indicate
that there were two reasons for the governmental plan exemption: (1)
Federalism concerns; and (2) the taxing power of State and local
governments was thought to offer sufficient protection for participants
in public plans.\21\ In a summary of ERISA's predecessor bill, Senator
Lloyd Bentsen commented that ``State and local governments must be
allowed to make their own determination of the best method to protect
the pension rights of municipal and state employees. These are
questions of state and local sovereignty and the Federal Government
should not interfere.'' \22\
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\21\ ERISA included a directive for the Committee on Education
and Labor and the Committee on Ways and Means of the House of
Representatives and the Committees on Finance and on Labor and
Public Welfare of the Senate to study pension retirement plans
sponsored by Federal, State, and local governments and analyze: (1)
The adequacy of existing levels of participation, vesting and
financing arrangements; (2) existing fiduciary standards; and (3)
the necessity for Federal legislation and standards with respect to
such plans. See Staff of House Comm. On Education and Labor, 95th
Cong., 2d Sess., Pension Task Force Report on Public Employee
Retirement Systems (Comm. Print 1978).
\22\ Staff of the Senate Comm. on Labor and Public Welfare, 94th
Cong., Legislative History of the Employee Retirement Income
Security Act of 1974, Vol. I 220 (Comm. Print 1976).
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While Congress was concerned about pension protection for public as
well as private employees, governmental plans have been excluded from
many of the qualification requirements because, in addition to
federalism concerns, Congress believed that ``the ability of
governmental bodies to fulfill their obligations to employees through
their taxing powers is an adequate substitute for termination
insurance.'' \23\ As a result, ERISA includes exclusions for
governmental plans under titles I and IV of ERISA and an exemption for
governmental plans from most of the qualification requirements under
the Code that were added under title II of ERISA (as described in this
preamble under the heading, ``Exemption of Governmental Plans from
Certain Qualified Plan Rules'').
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\23\ S. Rep. No. 93-383, at 81 (1973). See also H.R. Rep. No.
93-807, at 164-5 (1974).
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Interagency Coordination on Governmental Plan Determinations
Historically, the IRS, DOL, and PBGC (the Agencies) have informally
conferred prior to making determinations on governmental plan status in
individual cases. In Notice 2005-58 (2005-2 CB 295), see Sec.
601.601(d)(2), the Treasury Department and the IRS stated their
intention of publishing guidance regarding governmental plans under
section 414(d). The Agencies have become increasingly concerned with
the growing number of requests for governmental plan determinations
from plan sponsors whose relationships to States or political
subdivisions thereof are increasingly remote and whose arguments for
concluding that their plans are governmental plans raise novel issues.
The use of differing approaches by the courts and the Agencies has
resulted in uncertainty as entities with organizational, regulatory,
and contractual connections with States or political subdivisions of
States try to ascertain which statutory and regulatory requirements
apply to their retirement plans. These proposed regulations are
intended to address this issue by establishing coordinated criteria for
determining whether a plan is a governmental plan within the meaning of
section 414(d) of the Code. Although these proposed regulations are
only applicable for purposes of section 414(d), the DOL and the PBGC
were consulted in developing this proposal. The DOL and the PBGC agreed
that it would be advantageous for the Agencies and other affected
parties to have coordinated criteria for determining whether a plan is
a governmental plan within the meaning of section 414(d) of the Code,
section 3(32) of title I of ERISA, and section 4021(b) of title IV of
ERISA. In that regard, comments are requested on any issues arising
from these proposed regulations in light of the interaction of the
governmental plan definition in the Code with the governmental plan
definitions in section 3(32) of title I of ERISA and section 4021(b) of
title IV of ERISA. Copies of the comments on these regulations will be
forwarded to the DOL and the PBGC.
Explanation of Provisions
I. Overview
A. In General
These proposed regulations would generally define the term
``governmental plan'' within the meaning of section 414(d) of the Code.
These proposed regulations would also define other key terms relating
to the general definition of ``governmental plan,'' including the
definitions of ``State,'' ``political subdivision of a State,'' and
``agency or instrumentality of a State or political subdivision of a
State.'' While these terms are commonly used in other Code sections,
the definitions in these proposed regulations are only
[[Page 69179]]
applicable for purposes of section 414(d), and not for any other
purpose under the Code. For example, the definition of the term
``instrumentality'' under these proposed regulations may be different
for other purposes under the Code.
As stated, the regulations under section 414(d) would only define
the term ``agency or instrumentality of the United States'' and
``agency or instrumentality of a State or political subdivision of a
State'' for purposes of determining whether a plan is a governmental
plan under section 414(d). Thus, the rules in these proposed
regulations would not apply for purposes of defining the term
``instrumentality,'' under any other provisions of the Code.
In addition, these regulations do not address certain issues
relating to governmental entities, including when an entity is so
closely related to a State that it constitutes an ``integral part'' of
a State.\24\ The criteria for treating an entity as an ``integral
part'' of a State will be the subject of a separate guidance project.
Such guidance defining ``integral part'' may include stricter criteria
than would apply under these proposed regulations for determining
whether an entity is an agency or instrumentality of a State.
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\24\ Over the years, the IRS has extended the income tax
exemption it provides to states and political subdivisions to
entities it regards as their ``integral parts.'' See Rev. Rul. 87-2,
1987-1 C.B. 18; see also Treas. Reg. Sec. 301.7701-1(a)(3).
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B. Definition of Governmental Plan
These proposed regulations reflect the statutory definition of the
term ``governmental plan'' as a plan established and maintained for its
employees by the Government of the United States, by the government of
any State or political subdivision thereof, or by any agency or
instrumentality of the foregoing. Within this definition, there are
several key terms relating to governmental plans, the definitions of
which are set forth in these proposed regulations. As mentioned in the
``Background'' section of this preamble, section 414(d) also includes
special rules relating to the Railroad Retirement Act of 1935 or 1937,
the International Organizations Immunities Act, and plans of Indian
tribal governments. These proposed regulations do not address the term
``governmental plan'' as it relates to the special provisions in
section 414(d) relating to the Railroad Retirement Act of 1935 or 1937,
or the International Organizations Immunities Act. The special rules
for Indian tribal governments are reserved in these proposed
regulations and are in a separate notice of proposed rulemaking, which
is being published elsewhere in the Rules and Regulations portion of
this issue in the Federal Register.
C. Definitions of the United States and Agency or Instrumentality of
the United States
These proposed regulations would define the term ``United States,''
for purposes of the governmental plan definition under section 414(d),
as having the same meaning set forth in section 7701(a)(9). Section
7701(a)(9) provides that the term ``United States,'' when used in a
geographical sense, includes only the States and the District of
Columbia.
Whether an entity is an ``agency or instrumentality of the United
States'' is determined based on the specific purpose for which the
designation is sought and is decided by determining if Congress
intended the entity to be treated as a Federal entity for the specific
purpose.\25\ The proposed regulations would define the term ``agency or
instrumentality of the United States'' as an entity that satisfies the
facts and circumstances test as set forth in these regulations. The
facts and circumstances test, similar to the factors weighed by the
Berini court, focuses on the ``degree to which the entity is connected
with the * * * federal government.'' \26\ The factors in this test are
a compilation of various different tests used for governmental plan
determinations, including factors in the Berini and Rose cases, as well
as Rev. Ruls. 57-128 and 89-49. The facts and circumstances test is
similar to that proposed for agencies and instrumentalities of a State
or political subdivision thereof, (which is described in this preamble
under the heading, ``Definition of agency or instrumentality of a State
or political subdivision of a State'') but modified to reflect that
this definition does not implicate the federalism concerns present in
making determinations relating to agencies and instrumentalities of a
State or political subdivision thereof.
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\25\ See Berini v. Federal Reserve Bank of St. Louis, 420 F.
Supp.2d at 1025.
\26\ Id.
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The proposed regulations provide that, in making a determination of
whether an entity is an ``agency or instrumentality of the United
States,'' the factors to be considered include whether:
The entity performs or assists in the performance of a
governmental function.
There are no private interests involved, or the Government
of the United States has all of the powers and interests of an owner.
In determining whether an entity that holds stock has a private
interest, stock will not be considered a private interest if the stock
of the corporation is not acquired for investment purposes or for
purposes of control.\27\
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\27\ The Department of Treasury and the IRS recognize that an
entity may hold stock for purposes other than investment and
control. For example, the federal reserve banks are required to hold
stock in the Federal Reserve Bank of its district because ownership
is a condition of being a member in the Federal Reserve System.
Unlike stock in a private corporation, this stock is not acquired
for investment purposes or for purposes of control. See Berini v.
Federal Reserve Bank of St. Louis, 420 F. Supp.2 at 1024, citing Lee
Const. Co., Inc. v. Federal Reserve Bank of Richmond, 558 F. Supp.
165, 177 n.17 (D.Mich. 1982), citing 4 F. Solomon, W. Schlicting, T.
Rice & J. Cooper, Banking Law, Sec. 77.02, at 77-6 to 77-7 (1982).
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The control and supervision of the entity is vested in the
Government of the United States. Control must be more than the
government's extensive Federal regulation of an industry.
The entity is exempt from Federal, State, and local tax by
an Act of Congress.
The entity is created by the United States Government
pursuant to a specific enabling statute that prescribes the purposes,
powers, and manner in which the entity is to be established and
operated.
The entity receives financial assistance from the
Government of the United States. However, an entity is not a
governmental entity merely because it receives funds from the
Government of the United States under a contract to provide a
governmental service.
The entity is determined to be an agency or
instrumentality of the United States by a Federal court.
Other governmental entities recognize and rely on the
entity as an arm of the Government of the United States.
The entity's employees are treated in the same manner as
Federal employees for purposes other than providing employee benefits
(for example, the entity's employees are granted civil service
protection).
These proposed regulations also provide an example, illustrating
the application of the facts and circumstances test to a particular
entity--a Federal credit union. As announced in previous guidance, one
purpose of these regulations is to address whether a Federal credit
union is a governmental entity for purposes of determining whether the
Federal credit union can maintain an eligible nonqualified deferred
compensation plan. Notice 2005-58 addresses certain income tax issues
with respect to
[[Page 69180]]
nonqualified deferred compensation plans maintained by Federal credit
unions, including whether a Federal credit union can maintain an
eligible nonqualified deferred compensation plan described in section
457(b). Under Notice 2005-58, a plan in effect on August 15, 2005, that
is maintained by a Federal credit union and that is intended to be an
eligible nonqualified deferred compensation plan of a non-governmental
tax-exempt employer would not fail to be an eligible plan under section
457(b) solely because the employer is a Federal credit union, provided
that certain conditions are satisfied (including the condition that the
plan of the Federal credit union not have claimed to be a governmental
plan for purposes of section 414(d) of the Code and section 3(32) of
ERISA). The rule in Notice 2005-58 only applies pending the issuance of
future guidance regarding section 414(d). See Sec.
601.601(d)(2)(ii)(b). Accordingly, upon adoption of these regulations
as final regulations, the special treatment provided in Notice 2005-58
for Federal credit unions will no longer apply. However, after issuance
of these regulations as final regulations, a Federal credit union can
be an eligible employer within the meaning of section 457(e)(1)(B) on
the basis that Federal credit unions are non-governmental tax-exempt
organizations.
D. Definitions of State and Political Subdivision of a State
The proposed regulations define the term ``State'' as any State of
the United States and the District of Columbia. This definition, which
is based on the definition of ``State'' in section 7701(a)(10), is
different from the definition of ``State'' under section 3(10) of
ERISA, which defines, in relevant part, the term ``State'' as any State
of the United States, the District of Columbia, Puerto Rico, the Virgin
Islands, America Samoa, Guam, and Wake Island.
The term ``political subdivision of a State'' is defined in these
proposed regulations 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.\28\ Examples of sovereign powers include the power of taxation,
the power of eminent domain, and the police power. The definition of
``political subdivision of a State'' also provides that the governing
officers of the authority must be appointed by State officials or
publicly elected.
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\28\ For certain purposes, the effect of an entity being
determined to be a political subdivision of a State may be similar
to the entity being determined to be an agency or instrumentality of
a State or political subdivision and for other purposes the effects
may be different. Examples in which it is relevant whether an entity
is a political subdivision in contrast to an agency or
instrumentality of a State or political subdivision include the
exclusion provided under section 402(l), the excise tax under
section 4965, and the exception to the 10 percent additional tax
under section 72(t)(10).
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The term ``political subdivision of a State'' has been used for
purposes other than section 414(d), including the NLRA and section
103.\29\ The definition in these proposed regulations of the term
``political subdivision of a State'' applies only for purposes of
section 414(d), and not for any other purposes under the Code or any
other statute, including whether an entity is treated as a political
subdivision for purposes of the NLRA or section 103 of the Code.
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\29\ Two court cases that have analyzed whether an entity is a
``political subdivision of a State'' for purposes of section 103 of
the Code are Commissioner of Internal Revenue v. Shamberg's Estate,
144 F.2d 998 (2nd Cir. 1944), cert. denied, 323 U.S. 792 (1945), and
Commissioner of Internal Revenue v. White's Estate, 144 F.2d 1019
(2nd Cir. 1944), cert. denied, 323 U.S. 792 (1945).
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E. Definition of Agency or Instrumentality of a State or a Political
Subdivision of a State
These proposed regulations would provide guidance on determining
whether an entity is an ``agency or instrumentality of a State or a
political subdivision of a State.'' These regulations would provide
that the determination is based on a facts and circumstances test. The
proposed regulations provide that numerous factors have been applied by
the IRS in determining whether an entity is an agency or
instrumentality of a State or a political subdivision of a State.
Satisfaction of one or more of the factors is not necessarily
determinative of whether an organization is a governmental entity. One
factor that is not weighed by the IRS is the way the entity refers to
itself. For example, the mere fact that an entity is called the
``Educational Service Agency of City A'' would not be a factor in
determining whether the entity is an agency or instrumentality of City
A.
Major factors for determining whether an entity is an agency or
instrumentality of a State or political subdivision of a State are
whether:
The entity's governing board or body is controlled by a
State or political subdivision.
The members of the governing board or body are publicly
nominated and elected.
The entity's employees are treated in the same manner as
employees of the State (or political subdivision thereof) for purposes
other than providing employee benefits (for example, the entity's
employees are granted civil service protection).
A State (or political subdivision thereof) has fiscal
responsibility for the general debts and other liabilities of the
entity (including funding responsibility for the employee benefits
under the entity's plans).
In the case of an entity that is not a political
subdivision, the entity is delegated, pursuant to a statute of a State
or political subdivision, the authority to exercise sovereign powers of
the State or political subdivision (such as, the power of taxation, the
power of eminent domain, and the police power).
It is expected that, in applying the factor relating to whether the
entity's governing board or body is controlled by a State or political
subdivision, the control cannot be a mere legal possibility. Examples
of situations in which the control factor might be a mere legal
possibility are cases in which there are a number of tiers of
intervening corporations between the entity and the State, and cases in
which the legal power to control is shared among so many governing
entities that none of them can be said to be responsible in the event
of a failure to exercise control. In addition, since these two factors
are interrelated, an entity that would satisfy the control factor would
not be expected to satisfy the factor relating to whether members of
the governing board or body are publicly elected or nominated.
Alternatively, an entity that would satisfy the factor relating to
whether members of the governing board or body are publicly elected or
nominated would not be expected to satisfy the control factor.
Other factors for determining whether an entity is an agency or
instrumentality of a State or political subdivision of a State are
whether:
The entity is created by a State government or political
subdivision pursuant to a specific enabling statute that prescribes the
purposes and powers of the entity, and the manner in which the entity
is to be established and operated.
The entity is directly funded through tax revenues or
other public sources.
The entity is treated as a governmental entity for Federal
employment tax or income tax purposes (for example, whether the entity
has the authority to issue tax-exempt bonds under section 103(a) of the
Code) or under other Federal laws.
[[Page 69181]]
The entity's operations are controlled by a State or
political subdivision.
The entity is determined to be an agency or
instrumentality of a State or political subdivision thereof for
purposes of State law. For example, the entity is subject to open
meetings laws or the requirement to maintain public records that apply
only to governmental entities, or the State attorney general represents
the entity in court under a State statute that only permits
representation of State entities.
The entity is determined to be an agency or
instrumentality of a State or political subdivision thereof by a State
or Federal court for purposes other than section 414(d).
There are two additional factors to be considered. First, if a
party other than a State (or political subdivision, agency, or
instrumentality thereof) has an ownership interest, or other similar
interests, in the entity, this factor would indicate that the entity is
not an agency or instrumentality of a State or political subdivision
thereof (however, an entity would not necessarily be considered an
agency or instrumentality of a State or political subdivision thereof
merely because there is no private ownership in the entity or the
entity serves a governmental purpose). Second, if an entity does not
serve a governmental purpose, this factor would indicate that it is not
an agency or instrumentality of a State (or political subdivision
thereof).
The proposed regulations include a variety of examples to
illustrate whether an entity is an agency or instrumentality of a State
or political subdivision thereof. Many of these examples are drawn from
prior judicial opinions, as well as the Agencies' determinations.\30\
Within the description of particular factors, there are some examples
that illustrate whether a particular factor is satisfied. However, the
mere satisfaction of a particular factor is not conclusive in
determining whether an entity is an agency or instrumentality within
the meaning of these regulations.
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\30\ See, for example, Brock v. Chicago Zoological Society, 820
F.2d 909 (7th Cir. 1987) and NLRB v. Parents & Friends of the
Specialized Living Center, 879 F.2d 1442 (7th Cir. 1989).
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F. Requirements for Establishing and Maintaining a Section 414(d)
Governmental Plan
The proposed regulations would provide that a plan is established
and maintained for the employees of a governmental entity if the
following requirements are satisfied: (1) The plan is established and
maintained by an employer within the meaning of Sec. 1.401-1(a)(2) of
the Income Tax Regulations; \31\ (2) the employer is a governmental
entity; and (3) the only participants covered by the plan are employees
of the governmental entity. For purposes of determining whether
employees covered by a plan are employees of a governmental entity,
employee representatives described in section 413(b)(8) (including
individuals who are employed by the plan) would be treated as employees
of the plan sponsor.\32\
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\31\ Section 1.401-1(a)(2) generally provides that a qualified
pension, profit-sharing, or stock bonus plan is a definite written
program and arrangement which is communicated to the employees and
which is established and maintained by an employer.
\32\ See Sec. 1.413-1(i)(1) for rules for when an employee is
an employee representative.
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The proposed regulations would provide rules for changes in status
of an entity from a private entity to a governmental entity and from a
governmental entity to a private entity. As mentioned in the
``Background'' section of this preamble, the qualification requirements
for a private qualified plan differ substantially from those of a
governmental qualified plan. The issue of whether a plan of a private
employer that later becomes a governmental entity can be a governmental
plan raises a question regarding the interaction among the three
definitions of the term ``governmental plan'' in ERISA. Section 414(d)
of the Code defines the term ``governmental plan'' as ``a plan
established and maintained by the Government of the United States, by
the government of any State or political subdivision thereof, or by any
agency or instrumentality of the foregoing.'' In title IV of ERISA,
section 4021(b)(2) provides that any plan ``established and maintained
for its employees by the Government of the United States, by the
government of any State or political subdivision thereof, or by any
agency or instrumentality of the foregoing'' is exempt from coverage by
ERISA. In title I of ERISA, section 3(32) defines a governmental plan
as ``a plan established or maintained by the Government of the United
States, by the government of any State or political subdivision
thereof, or by any agency or instrumentality of the foregoing.'' While
the definitions in title II of ERISA (Code) and title IV of ERISA (PBGC
provisions) use the language ``established and maintained'' by a
governmental employer, the title I definition uses the language
``established or maintained.''
This difference in statutory language was addressed in Rose v. Long
Island Railroad Pension Plan, 828 F.2d 910 (2nd Cir. 1987), cert.
denied, 485 U.S. 936 (1988). In Rose, the State of New York, through
the Metropolitan Transportation Authority (MTA), acquired the Long
Island Railroad Company in 1966 (LIRR). The LIRR had originally been
chartered as a private stock corporation. As part of the acquisition,
the State also assumed sponsorship of the Long Island Railroad Pension
Plan (LIRR Pension Plan). After ERISA was enacted in 1974, the widow of
a participant who died in 1976 in the LIRR Pension Plan sued the plan
under title I of ERISA after being denied survivorship benefits. The
Rose court concluded that the LIRR Pension Plan was a governmental plan
within the meaning of section 3(32) of ERISA because the LIRR was an
agency or instrumentality of a political subdivision, the MTA.
The Rose court took the position that if a private entity is
acquired by a governmental entity which becomes the plan sponsor, the
plan can be established by the governmental entity and, thus, be a
governmental plan. The court interpreted the ``established or
maintained'' language in section 3(32) literally, but also noted the
discrepancy between the ``established or maintained'' language in ERISA
section 3(32) and the ``established and maintained'' language in Code
section 414(d) and ERISA section 4021(b)(2) (emphasis added). Despite
this difference in the three statutory definitions, Congress intended
all three definitions to be interpreted in a similar manner. The Rose
court reasoned that:
``If a plan is required to have been both established and
maintained by a governmental entity in order to qualify for
exemption, then a plan which was established by a private entity but
subsequently taken over by a governmental body would continue to be
subject to ERISA. This outcome conflicts with the federalism-based
concerns which led Congress to exempt governmental plans in the
first place.'' Rose v. Long Island Railroad Pension Plan, 828 F.2d
at 920.
The Rose court stated that courts have interpreted the word ``and''
as meaning ``or'' if such interpretation would reflect the legislative
intent of the statute.\33\ The Rose court noted that its conclusion was
consistent with the approach taken by the PBGC in a similar matter
involving an entity's change to governmental status prior to the
enactment of ERISA where the PBGC stated that it would not impose the
``established'' requirement when doing
[[Page 69182]]
so would frustrate the congressional intent of section 4021(b)(2) of
ERISA.\34\
---------------------------------------------------------------------------
\33\ See Rose v. Long Island Railroad Pension Plan, 828 F.2d at
919.
\34\ The Rose court said that: ``We find the PBGC's approach to
be a sensible one; the status of the entity which currently
maintains a particular pension plan bears more relation to Congress'
goals in enacting ERISA and its various exemptions, than does the
status of the entity which established the plan.'' Rose v. Long
Island Railroad Pension Plan, 828 F.2d at 920. See PBGC Opinion
Letter 75-44 (December 9, 1975).
---------------------------------------------------------------------------
The Rose court also noted that the LIRR Pension Plan had been
rewritten and substantially funded by the State since its acquisition
of the LIRR in 1966, and stated that it would have reached the same
conclusion regarding the plan's governmental status even if the
definition under section 3(32) of ERISA used the phrase ``established
and maintained.''
``In any event, even if we agreed with Rose that the correct
interpretation of [section 3(32) of ERISA] was established and
maintained, we would still not conclude that the LIRR Plan was
covered by ERISA, because the Plan was in fact established and
maintained by the LIRR.''
Rose v. Long Island Railroad Pension Plan, 828 F.2d at 920. See also
Roy v. Teachers Insurance and Annuity Association, 878 F.2d 47 (2nd
Cir. 1989).
The court concluded that a broad reading of the term
``established''--whereby a plan not previously established under ERISA
may become a plan established under ERISA without the preexisting one
having been formally ``terminated''--is more consistent with the
legislative intent behind the governmental plan exemption.\35\
---------------------------------------------------------------------------
\35\ But see Hightower v. Texas Hospital Association, 65 F.3d
443, 448 (5th Cir. 1995), in which the Fifth Circuit held that if
the plan was ``established or maintained'' for its employees by a
governmental employer, the plan was exempt from coverage under title
I of ERISA, even if it was not exempt from coverage under the title
IV ``established and maintained'' test. The Court of Appeals held
that the difference in statutory language between ``established or
maintained'' and ``established and maintained'' had to be given some
meaning, and held that for a plan to be a governmental plan under
ERISA section 4021(b)(2), the plan had to be both established and
maintained by the government. Id. at 450-51. The court did not
discuss what, if any, actions would be sufficient for an employer
assuming sponsorship of an existing plan to be treated as having
``established'' the plan.
---------------------------------------------------------------------------
For reasons similar to those presented by the Rose court, but
consistent with the ``established and maintained'' language in section
414(d), the proposed regulations would set forth rules for employers
changing status from private to governmental that are consistent with
the legislative intent of the exemption of governmental plans. The
proposed regulations would provide that if an employer becomes a
governmental entity or a governmental entity becomes the employer under
the plan (for example, in connection with an asset transfer), the plan
will be treated as a governmental plan established by a governmental
employer on the date of the change (including all of the plan's assets
and liabilities attributable to service before and after the date of
the change). Thus, in such a case, under the proposed regulations, the
plan would have to comply with all the requirements for a private plan
up to the date of the change and then comply with the requirements for
a governmental plan after the date of the change. These same rules
would also apply if a portion of a private plan was spun off to a plan
maintained by a governmental employer: that portion of the plan would
cease to be subject to Code rules applicable to nongovernmental
employers, and instead would become part of a governmental plan, while
the remaining portion of the private plan that was not spun off would
continue to be subject to the protection and other rules applicable to
private plans. These rules would provide standards for determining when
the Code protections and other rules for a private plan cease to apply
(and when the substantially different rules for a governmental plan
begin to apply).
In the case of a change in status from a private plan to a
governmental plan, comments are requested on whether, and if so how,
these regulations should address rights and obligations that accrued
prior to the conversion to a governmental plan, including the
responsibility of the former private plan sponsor (or former private
plan) for benefits that accrued prior to the conversion. Any comments
that address the potential impact of the proposed regulation's approach
on rights and responsibilities under title I and title IV of ERISA will
be forwarded to the DOL and the PBGC.
Similarly, the regulations would provide that if a governmental
employer ceases to be a governmental entity, the plan will be treated
as being established by a private employer thereafter (including all of
the plan's assets and liabilities attributable to service before and
after the date of the change). Such a change would occur either where
the employer entity ceases to be a governmental entity (such as a spin-
off of a corporation) or where the employees become employees of a
different entity (such as in an asset transfer). Thus, for example, the
entity in either case would no longer satisfy the requirement that the
employer be a governmental entity. If such a change occurs, the plan
must comply with the requirements for a governmental plan up to the
change and then comply with all the requirements for a private plan for
periods after the date of the change. (See also the related discussion
under the heading, ``Comments and Public Hearing.'')
In the case of a formerly governmental plan becoming a private
plan, the plan and plan sponsor may secure certain advantages, such as
PBGC coverage or ERISA preemption, not available to governmental plans
and governmental sponsors. However, nothing in these proposed income
tax regulations should be construed to mean that, with respect to a
transaction such as an asset sale, in which assets and liabilities of a
governmental plan are transferred to a private plan, the assumption of
benefit liabilities accrued prior to the transfer to the private plan
relieves the former governmental employer (or former governmental plan)
from responsibility for those benefits.
As previously stated, the proposed regulations would provide that
if a governmental employer ceases to be a governmental entity, the plan
will be treated as being established by a private employer on the date
of the change. The proposed regulations would provide an exception to
this general rule when there is a change in status from a governmental
entity to a private entity under certain circumstances. Specifically,
if a governmental plan ceases to be maintained by a governmental
employer, the plan will nevertheless be treated as continuing to be a
governmental plan if the benefits held under the governmental plan are
frozen and a governmental entity assumes responsibility for the plan.
While the frozen plan would continue to be treated as a governmental
plan, the plan would be permitted (but not required) to provide
participating employees with credit for service with the new employer
for purposes of vesting, final pay adjustments, entitlements to
benefits such as early retirement benefits, and similar service credit
other than benefit accrual credit.
Further, certain types of plans are limited under the Code to
specific types of employers, including limitations that apply
differently depending on whether or not the employer is or is not a
governmental entity. These limitations on employer eligibility raise
special problems for cases in which an entity becomes or ceases to be a
governmental employer. For example, because a qualified cash or
deferred arrangement under section 401(k) generally cannot be
maintained by a State or local government or political subdivision, or
any agency or instrumentality thereof,
[[Page 69183]]
such a plan maintained by a private employer cannot be continued if the
employer later becomes part of a State. Other special problems arise if
a governmental employer that is not a tax-exempt organization under
section 501(c)(3) and that is not a public school attempts to become a
sponsoring employer of a section 403(b) plan of a tax-exempt
organization under section 501(c)(3). Likewise, a State entity cannot
maintain an unfunded section 457(b) plan of a tax-exempt organization
described in section 457(e)(1)(B). These proposed regulations would not
alter rules relating to the eligibility of an employer to establish or
maintain a particular type of retirement plan. An employer that is
considering a change in its status should evaluate whether it is
eligible to sponsor any plan that it assumes, taking into account the
employer eligibility rules. Therefore, sponsors should not assume from
these proposed regulations that a change of sponsorship from a private
to governmental employer, or vice versa, will not result in any adverse
tax consequences. As emphasized elsewhere in this preamble, the
proposed regulations would provide that the established and maintained
rules apply only for purposes of section 414(d).
Proposed Effective Date
It is expected that these proposed regulations would not be
applicable earlier than for plan years beginning after the date of the
publication of the Treasury decision adopting these rules as final
regulations in the Federal Register. Generally, amendment of a State or
local retirement plan requires enactment of State legislation. The
Department of Treasury and IRS intends to take into consideration the
time required to complete the State legislative process when
determining an effective date for these regulations.
Special Analyses
It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It has also
been determined that section 553(b) of the Administrative Procedure Act
(5 U.S.C. chapter 5) does not apply to these regulations. In addition,
because no collection of information is imposed on small entities, the
provisions of the Regulatory Flexibility Act (5 U.S.C. chapter 6) do
not apply, and therefore, a Regulatory Flexibility Analysis is not
required. Pursuant to section 7805(f) of the Code, this notice of
proposed rulemaking will be submitted to the Small Business
Administration for comment on its impact on small business.
Comments and Public Hearing
Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (a signed original
and eight (8) copies) or electronic comments that are submitted timely
to the IRS. The Treasury Department and the IRS specifically request
comments on the clarity of the proposed rules and how they can be made
easier to understand. All comments will be available for public
inspection and copying.
These proposed regulations would provide that a determination of
whether an entity is an agency or instrumentality of a State or a
political subdivision thereof is based on a facts and circumstances
analysis. Under the proposed regulations, the factors to be applied
would be ranked into main factors and other factors.\36\ Comments are
requested on whether the final regulations should eliminate the
distinction between main and other factors. Comments are also requested
on the ordering and the application of the main and other factors; for
example, whether the final regulations should provide a list of factors
with a safe harbor standard under which, if an entity satisfies
identified factors, the entity will be treated as an agency or
instrumentality of a State or political subdivision thereof, for
purposes of section 414(d). Comments are also requested on whether the
distinction between main and other factors should be retained, in
addition to providing a safe harbor standard.
---------------------------------------------------------------------------
\36\ For a list of the factors, see discussion under the heading
Definition of Agency or Instrumentality of a State or a Political
Subdivision of a State in the Explanation of Provisions of this
preamble.
---------------------------------------------------------------------------
The factors identified in this bright line test might be whether:
(1) A majority of the entity's governing board or body are either
controlled by a State or political subdivision thereof or elected
through periodic, publicly held elections (with the nominees elected by
the voters); and (2) a State or political subdivision thereof has the
fiscal responsibility for the general debts and other liabilities of
the entity, including the entity's employee benefit plans. This
standard might be available only if the entity was created by a State
government or political subdivision pursuant to a specific enabling
statute that prescribes the purposes, powers, and manner in which the
entity is to be established and operated.
Apart from the special rules relating to plan coverage for
employees of a labor union or plan under section 413(b)(8), these
proposed regulations do not include special rules addressing existing
practices under which a small number of private employees participate
in a plan that would otherwise constitute a governmental plan under
section 414(d). Comments are requested on whether an exception should
be provided in such cases. Parameters that could be taken into account
for such a special rule include the following: (1) Whether the private
employees were previously employees of the sponsoring governmental
entity; (2) whether the private employees were previously participants
in the governmental plan; (3) whether the number or percentage of such
former employees who participate in the governmental plan is de minimis
(and, if so, what constitutes a de minimis number or percentage); (4)
whether the coverage is pursuant to pre-existing plan provisions; (5)
whether the private employer performs a governmental function and has
been officially designated as a State entity for plan participation
purposes; and (6) whether the employer is ineligible to sponsor the
particular type of governmental plan (for example, whether a private
employer is a tax-exempt organization under section 501(c)(3) that can
sponsor a section 403(b) plan, and whether the private employer
sponsors or has sponsored plans that cannot be sponsored by a State
governmental entity, such as a cash or deferred arrangement under
section 401(k) or an unfunded section 457(b) plan of a tax-exempt
entity (described in section 457(e)(1)(B)).
If any special rule for such circumstances were to be included in
the final regulation, there would be a number of related issues. These
issues would include how to address the status of such a plan as a
governmental multiple employer plan. Other issues might include how
section 414(h) governmental pick-up plans should be treated,
differences resulting from the application of federal employment taxes
to a private employer participating in a governmental multiple employer
plan, the application of the minimum funding rules with respect to a
private employer participating in a governmental multiple employer
plan, how the prohibited transaction rules of section 4975 would apply
with respect to a private employer participating in a governmental
multiple employer plan, how the special benefit limitation rules of
section 415 would apply to private plan participants in the
governmental plan; and what treatment should apply where the plan was
[[Page 69184]]
previously a funded section 457(b) plan of a State or local government.
If the final regulations do not provide any special rule for cases
in which a governmental plan continues to cover private employees who
were formerly governmental employees, it is expected that a reasonable
transition period following publication of the final regulations will
be provided. Comments are requested on what transitional relief should
be provided to a governmental plan that covers private employees who
were formerly governmental employees and continue to participate in the
plan that would otherwise constitute a governmental plan under section
414(d) (such as the governmental plan spinning off a portion of the
assets and liabilities of the plan with respect to the former employees
as a separate non-governmental plan). Comments are also requested on
whether this method of correction might also be appropriate in
situations such as described in Example 5 in paragraph (k)(4) of the
proposed regulations.
The final regulations may also provide transitional relief for
entities that previously operated as if they were governmental entities
eligible to participate or sponsor governmental plans but later were
determined to be private entities under the regulations. Comments are
requested on what transitional relief should be provided to an entity
that is later determined to be a private entity. The Treasury
Department and the IRS anticipate that there will be a reasonable
transition period following the final regulations for a plan to revise
its arrangements in order to avoid the adverse tax consequences of
failing to comply with all the requirements of a private retirement
plan.
A public hearing has been scheduled for (date to be provided when
proposed regulations are published), beginning at 10 a.m. in the
Auditorium, Internal Revenue Building, 1111 Constitution Avenue NW.,
Washington DC. Due to building security procedures, visitors must enter
at the main entrance located at 1111 Constitution Avenue NW. In
addition, all visitors must present photo identification to enter the
building. Because of access restrictions, visitors will not be admitted
beyond the immediate entrance area more than 30 minutes before the
hearing starts. For information about having your name placed on the
building access list to attend the hearing, see the FOR FURTHER
INFORMATION CONTACT portion of this preamble.
The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who
wish to present oral comments must submit written or electronic
comments and an outline of the topics to be discussed and time to be
devoted to each topic (signed original and eight (8) copies) by (date
to be provided when proposed regulations are published). A period of 10
minutes will be allotted to each person for making comments. An agenda
showing the scheduling of the speakers will be prepared after the
deadline for receiving comments has passed. Copies of the agenda will
be available free of charge at the hearing.
Drafting Information
The principal author of these proposed regulations is Pamela R.
Kinard, Office of Division Counsel/Associate Chief Counsel (Tax Exempt
and Government Entities), Internal Revenue Service. However, personnel
from other offices of the IRS and Treasury participated in their
development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.414(d)-1 is added to read as follows:
Sec. 1.414(d)-1 Definition of governmental plan.
(a) Definition of governmental plan--(1) In general. In accordance
with section 414(d), for purposes of part I of subchapter D of chapter
1 of the Internal Revenue Code and the regulations, the term
governmental plan means a plan established and maintained for its
employees by the Government of the United States, by the government of
any State or political subdivision thereof, or by any agency or
instrumentality of the foregoing, as determined pursuant to the
requirements of this section. The definitions set forth in this section
only apply for purposes of section 414(d) and this section.
(2) Definition for plans subject to certain statutes. For purposes
of part I of subchapter D of chapter 1 of the Internal Revenue Code and
the regulations, the term ``governmental plan'' also includes any plan
to which the Railroad Retirement Act of 1935 or 1937 applies and which
is financed by contributions required under that Act and any plan of an
international organization which is exempt from taxation by reason of
the International Organizations Immunities Act (59 Stat. 669).
(3) Definition for certain plans of Indian tribal governments. For
purposes of part I of subchapter D of chapter 1 of the Internal Revenue
Code and the regulations, the term ``governmental plan'' also includes
a plan which is established and maintained by an Indian tribal
government (as defined in section 7701(a)(40)), a subdivision of an
Indian tribal government (determined in accordance with section
7871(d)), or an agency or instrumentality of either, and all of the
participants of which are employees of such entity substantially all of
whose services as such an employee are in the performance of essential
governmental functions but not in the performance of commercial
activities (whether or not an essential governmental function).
(b) Definition of United States. The term United States has the
meaning set forth in section 7701(a)(9).
(c) Definition of agency or instrumentality of the United States--
(1) Agency or instrumentality of the United States. For purposes of the
definition of ``governmental plan'' in paragraph (a)(3) of this
section, the term agency or instrumentality of the United States means
an entity that satisfies the facts and circumstances test in paragraph
(c)(2) of this section.
(2) Facts and circumstances test. Whether an entity is an agency or
instrumentality of the United States is based on facts and
circumstances. In making this determination, the facts to be considered
include the following:
(i) The entity performs or assists in the performance of a
governmental function.
(ii) There are no private interests involved, or the Government of
the United States has all of the powers and interests of an owner. In
determining whether an entity that holds stock has a private interest,
stock will not be considered a private interest if the stock of the
corporation is not acquired for investment purposes or for purposes of
control.
(iii) The control and supervision of the entity is vested in the
Government of the United States. Control must be more than the
government's extensive Federal regulation of an industry.
(iv) The entity is exempt from Federal, State, and Local tax by an
Act of Congress.
(v) The entity is created by the United States Government pursuant
to a specific enabling statute that prescribes
[[Page 69185]]
the purposes, powers, and manner in which the entity is to be
established and operated.
(vi) The entity receives financial assistance from the Government
of the United States. However, an entity is not a governmental entity
merely because it receives funds from the Government of the United
States under a contract to provide a governmental service.
(vii) The entity is determined to be an agency or instrumentality
of the United States by a Federal court.
(viii) Other governmental entities recognize and rely on the entity
as an arm of the Government of the United States.
(ix) The entity's employees are treated in the same manner as
Federal employees for purposes other than providing employee benefits
(for example, the entity's employees are granted civil service
protection).
(3) Example. The following example illustrates the application of
this paragraph (c):
Example. (i) Facts. Entity A is a Federal credit union, which is
created pursuant to the Federal Credit Union Act, and is a tax-
exempt organization under section 501(c)(1)(A)(i). Membership in the
Federal credit union is not open to the general public but to
individuals who share a common bond, current or former employees of
specified employers. Entity A is member-owned and is controlled by a
board of directors that is elected by its membership. Entity A,
along with other Federal credit unions, is subject to regulation by
the National Credit Union Administration (NCUA), which is a Federal
agency that charters and regulates Federal credit unions.
(ii) Conclusion. Based on the facts and circumstances and the
factors in paragraph (c)(2) of this section, Entity A is not an
agency or instrumentality of the United States because its board of
directors is elected by its own members and the directors are not
responsible to the United States, except to the limited extent set
forth in the Federal Credit Union Act and regulated by the NCUA.
Thus, Entity A is not a governmental entity within the meaning of
paragraph (c) of this section.
(d) Definition of State. The term State means any State of the
United States and the District of Columbia.
(e) Definition of political subdivision of a State. The term
political subdivision of a State means--
(1) A regional, territorial, or local authority, such as a county
or municipality (such as, a municipal corporation), that is created or
recognized by State statute to exercise sovereign powers (which
generally means the power of taxation, the power of eminent domain, and
the police power); and
(2) The governing officers either are appointed by State officials
or publicly elected.
(f) Definition of agency or instrumentality of a State or political
subdivision of a State--(1) Agency or instrumentality of a State or
political subdivision of a State. The term agency or instrumentality of
a State or political subdivision of a State means an entity that
satisfies the facts and circumstances test in paragraph (f)(2) of this
section.
(2) Facts and circumstances test--(i) Factors to be considered. In
making the determination of whether an entity is an agency or
instrumentality of a State or political subdivision of a State, the
main factors to be considered are--
(A) The entity's governing board or body is controlled by a State
(or political subdivision thereof). For example, an entity's governing
board or body is controlled by a State (or political subdivision
thereof) if the public officials of the State (or political subdivision
thereof) have the power to appoint, and to remove and replace, a
majority of the entity's governing board or body. This factor is not
satisfied if the power to control is materially restricted (for
example, if any board member of the entity can be replaced only with an
individual chosen from a list of designees selected by the other
members of the governing board or body);
(B) The members of the governing board or body are publicly
nominated and elected;
(C) A State (or political subdivision thereof) has fiscal
responsibility for the general debts and other liabilities of the
entity, including responsibility for the funding of benefits under the
entity's employee benefit plans;
(D) The entity's employees are treated in the same manner as
employees of the State (or political subdivision thereof) for purposes
other than providing employee benefits (for example, the entity's
employees are granted civil service protection); and
(E) In the case of an entity that is not a political subdivision,
the entity is delegated the authority to exercise sovereign powers
(which generally means the power of taxation, the power of eminent
domain, and police powers) of the State (or political subdivision
thereof) and the delegation of authority is pursuant to a statute of a
State (or political subdivision thereof).
(ii) Other factors to be considered. In making the determination of
whether an entity is an agency or instrumentality of a State or a
political subdivision of a State, other factors include--
(A) The entity's operations are controlled by a State (or political
subdivision thereof);
(B) The entity is directly funded through tax revenues or other
public sources. However, this factor is not satisfied if an entity that
is not otherwise an agency or instrumentality is paid from public funds
under a contract to provide a governmental service or is funded through
grants by the State or Federal government;
(C) The entity is created by a State government or political
subdivision of a State pursuant to a specific enabling statute that
prescribes the purposes, powers, and manners in which the entity is to
be established and operated. However, a nonprofit corporation that is
incorporated under a State's general corporation laws is not created
under a specific enabling statute;
(D) The entity is treated as a governmental entity for Federal
employment tax or income tax purposes (such as, the authority to issue
tax-exempt bonds under section 103(a)) or under other Federal laws;
(E) The entity is determined to be an agency or instrumentality of
a State (or political subdivision thereof) for purposes of State laws.
For example, the entity is subject to open meetings laws or the
requirement to maintain public records that apply only to governmental
entities, or the State attorney general represents the entity in court
under a State statute that only permits representation of State
entities;
(F) The entity is determined to be an agency or instrumentality of
a State (or political subdivision thereof) by a State or Federal court;
(G) A State (or political subdivision thereof) has the ownership
interest in the entity and no private interests are involved; and
(H) The entity serves a governmental purpose.
(3) Examples. The following examples illustrate the application of
this paragraph (f). In each of these examples, unless otherwise stated,
only facts that are relevant to the examples are included and it is
assumed that no party other than a State or political subdivision
thereof has an ownership interest in the entity and that the entity
serves a governmental purpose. The examples are as follows:
Example 1. (i) Facts. Entity C is a utility company located in
County B of State A. Entity C is created pursuant to a State A
statute by a petition of 25 private citizens who are landowners, and
approved by an order of a judge in County B. Entity C is
administered by a board of commissioners named in the original
petition, with vacancies to be filled by the incumbents, but with
State A having the right to remove a board member for malfeasance.
Entity C has the power of eminent domain. In addition, the records
of Entity C are public records.
[[Page 69186]]
(ii) Conclusion. Based on the facts and circumstances, Entity C
is not an agency or instrumentality of County B within the meaning
of paragraph (f) of this section because it does not satisfy the
control factors described in paragraphs (f)(2)(i)(A) and (ii)(A) of
this section because Entity C is under the control of a self-
perpetuating board of directors and because State A or its officials
do not exercise control over the directors.
Example 2. (i) Facts. The facts are the same as in Example 1,
except that Entity C is administered by a board of commissioners
which is appointed by the Governor of State A and is subject to
removal proceedings by the Governor of State A, the County B
prosecutor, or the general public in County B. Vacancies on Entity
C's district board are filled by popular election or by appointment
of the Governor of State A. Entity C has the power of eminent
domain. In addition, the records of Entity C are public records.
(ii) Conclusion. Based on the facts and circumstances, Entity C
is an agency or instrumentality of County B within the meaning of
paragraph (f) of this section.
Example 3. (i) Facts. Entity K is a non-profit corporation that
operates a zoo in County J. Entity K is organized under the laws of
State L. Although Entity K was not created by State law, the
legislature of State L authorized the State's forest districts to
contract with zoological societies for the creation, operation, and
maintenance of zoological parks. County J entered into a contract
with Entity K, giving Entity K exclusive control and management
authority over the zoo in County J. Entity K, through government
contracts, receives over half of its revenues from taxes raised by
County J. The remaining revenues are from admission and parking
fees, concessions, souvenirs, and private donations. County J
maintains a significant amount of control over the budget of Entity
K, including overseeing the expenditures of nontax revenues
generated by Entity K. The zoo is located on land owned by County J,
and vehicles used at the zoo are owned by County J and licensed as
municipal vehicles. Entity K is managed by a 35-member board of
trustees. Only one member of the board of trustees is a public
official. Of the 240 members of Entity K who elect the board of
trustees, only 4 members are County J public officials. In addition,
County J has no direct role in Entity K's operation and maintenance
of the zoo. Employees of Entity K are not treated in the same manner
as public employees and, thus, are not covered under the civil
service rules, pension plan, or workers' compensation funds of
County J or State L.
(ii) Conclusion. Based on the facts and circumstances, Entity K
is not an agency or instrumentality of County J or State L within
the meaning of paragraph (f) of this section. Although Entity K is
partly funded by County J, it receives those funds under a contract
to provide governmental service and very few members of both the
board of trustees and the governing members of Entity K are public
officials.
Example 4. (i) Facts. Entity P is a non-profit corporation that
operates a 24-hour intermediate care facility for mentally
challenged adults located in State O. Entity P is licensed and
regulated by State O. While not created by statute, Entity P's
facility was built pursuant to statutory directives. Entity P is
managed by a 9-member board of directors, which consists of parents
of the patients at the facility and other volunteers. The directors
are elected by Entity P's corporate members. State O has no
authority to appoint or remove directors. The facility is managed by
an executive director who is hired by the board without State
approval. Pursuant to regulations, State O mandates certain
personnel requirements, including staffing levels and minimum
qualification requirements for staff members at the facility.
However, Entity P is responsible for hiring, firing, and other
disciplinary decisions. State O prescribes an hourly mean wage for
the employees of Entity P, which limits the total amount that Entity
P can pay its employees. In addition, State O imposes a ceiling on
fringe benefits available to employees of Entity P, but Entity P is
responsible for allocating the funds to pay for the fringe benefits.
(ii) Conclusion. Based on the facts and circumstances, Entity P
is not an agency or instrumentality of State O within the meaning of
paragraph (f) of this section. Although Entity P is directly funded
by State O, it receives those funds under a contract to provide
services to State O. Entity P does not satisfy the control factors
described in paragraphs (f)(2)(i)(A) and (ii)(A) of this section
because Entity P is controlled by directors who are chosen by Entity
P's corporate members. While State O has some oversight control over
Entity P's employees, through certification requirements and the
imposition of limitations on pay and fringe benefits, Entity P has
control over most employment decisions, as well as setting policies
for holidays, vacations, insurance, and retirement benefits.
Example 5. (i) Facts relating to University U. University U was
created by the legislature of State A and is an agency or
instrumentality of State A under this paragraph (f). The board of
trustees of University U appoints the president of University U. The
president of University U appoints the chancellor of the medical
school of University U. The chancellor of the medical school is also
a vice-president of University U. The chancellor of the medical
school appoints the various chairs of the clinical departments of
the medical school.
(ii) Facts relating to the corporate structure of Employer M.
The chairs of the clinical departments of the medical school have
incorporated a separate entity, Employer M, under State A's not-for-
profit law. Employer M is an integrated group practice for managing
the clinical practice activities of the medical school faculty and
was established in order to advance the purposes of the medical
educational program and related activities of the medical school of
University U. Under the by-laws of Employer M, any physician
employee of Employer M must be a faculty member of the medical
school (and if any physician employee of Employer M leaves the
faculty of the medical school, his or her employment with Employer M
terminates automatically).
(iii) Facts relating to the control of Employer M. Employer M is
governed by a board of trustees consisting of the chancellor of the
medical school, the clinical department chairs, and full-time
faculty members appointed by two-thirds of the clinical department
chairs. Performance of services as an employee of Employer M is a
condition of employment for all full-time faculty members of the
medical school. The faculty members are employees of University U
and, in the capacity of their employment at University U,
participate in the State A public employees' pension plan. Employer
M also employs administrative and non-faculty employees who are not
treated in the same manner as employees of State A (or University
U). Employer M charges patients for the services provided by
Employer M, and a portion of the fees collected are paid to
University U. The compensation levels for employees of Employer M
are set by faculty members who serve on the board of trustees of
Employer M. The compensation paid to faculty members by Employer M
is a substantial portion of the total compensation paid to them by
University U and Employer M. Audited financial records of Employer M
are submitted annually to the president of University U.
(iv) Conclusion. Employer M does not satisfy any of the factors
listed in paragraphs (f)(2)(i)(B) through (E) of this section (that
is, its trustees are not publicly nominated and elected, State A has
no fiscal responsibility for Employer M, administrative and non-
faculty employees of Employer M are not treated in the same manner
as employees of State A, and Employer M has no sovereign powers).
Employer M also does not satisfy any of the additional factors
listed in paragraphs (f)(2)(ii)(B) through (G) of this section, but
does satisfy the governmental purpose factor in paragraph
(f)(2)(ii)(H) of this section. With respect to the control factors
in paragraphs (f)(2)(i)(A) and (ii)(A) of this section, while all of
Employer M's trustees are employees of University U, the majority of
the board of trustees is not controlled by University U but by
clinical department chairs and full-time faculty members of
University U. Their service on the board of trustees of Employer M
is in their capacity as representatives of Employer M, not as
representatives of University U or State A. Accordingly, based on
the facts and circumstances, including the lack of involvement of
University U in overseeing the conduct of the board of trustees and
the operations of Employer M beyond review of its audited
financials, Employer M is not an agency or instrumentality of State
A within the meaning of paragraph (f) of this section.
Example 6. (i) Facts. Entity W, a private foundation, provides
public assistance to the indigent elderly in a residence hall built
on land privately donated to Entity W, located in City V. City V
contracts with Entity W to provide elder care to residents of City
V. Over the years, City V has regularly budgeted for services
provided by Entity W to its residents, including maintenance and
upkeep of its facilities, and salaries of employees. In 1970, Entity
W and City V together incorporated a non-profit organization, Entity
X, called ``City V Eldercare Residence,'' through which Entity W
would provide its services to the residents of City V. Under
[[Page 69187]]
Entity X's bylaws, Entity X is governed by a board of directors, six
of whom are appointed by the Mayor of City V, and six of whom are
appointed by Entity W. Entity X's employees are considered employees
of Entity X and are not treated in the same manner as municipal
employees of City V.
(ii) Conclusion. Although City V is a political subdivision of a
State within the meaning of paragraph (e)(1) of this section, Entity
X is not an agency or instrumentality of City V within the meaning
of paragraph (f) of this section. While Entity X satisfies the
governmental purpose factor described in paragraph (f)(2)(ii)(H) of
this section, it does not satisfy any other factor, including the
control factors described in paragraphs (f)(2)(i)(A) and (ii)(A) of
this section or the employee factor described in paragraph
(f)(2)(i)(D) of this section (because a majority of the board is not
appointed by City V and Entity X's employees are not treated in the
same manner as employees of City V).
Example 7. (i) Facts. Five States created Commission D as a body
corporate of each compacting State and territory. Commission D was
created to provide services to the States on issues relating to
higher education. Each governor of the five States appoints three
persons to the governing board of Commission D, which is subject to
the joint control of the five States. Commission D submits yearly
reports and budgets to the governors of each of the five States.
Commission D's operating costs are apportioned equally among the
States. The IRS determined in a ruling that Commission D was exempt
from gross income under section 115. The IRS also determined that
Commission D was an instrumentality of each of the five States for
employment tax purposes.
(ii) Conclusion. Based on the facts and circumstances,
Commission D is an agency or instrumentality of each of the five
States within the meaning of paragraph (f) of this section.
Example 8. (i) Facts. Entity S, incorporated under the laws of
State T as a non-profit corporation, operates a hospital in City R.
City R leases the hospital and its entire operation to Entity S. The
lease between City R and Entity S requires Entity S to transfer its
assets and liabilities back to the City upon expiration of the
lease. City R created the first board of directors for the hospital,
but it does not have the power to remove or replace any board
member. Only one of the 13 board members of Entity S is a public
official, an ex officio voting member. In addition, the board of
directors is not elected by the general public of City R. To fund a
subsequent expansion of the hospital facility, City R issued tax-
exempt bonds. Entity S does not have the authority to issue tax-
exempt bonds. Entity S does not exercise any sovereign powers.
Employees of Entity S are not treated in the same manner as
employees of City R. For example, Entity S and City R maintain
separate payrolls, health insurance plans, and pension plans.
(ii) Conclusion. Based on the facts and circumstances, Entity S
is not an agency or instrumentality of City R within the meaning of
paragraph (f) of this section. Although City R had the power of the
initial appointment of the board members, it cannot subsequently
appoint or remove any directors of Entity S, therefore, Entity S
does not satisfy the control factor described in paragraph
(f)(2)(i)(A) of this section.
(g) Special rules for plans of Indian tribal governments.
[Reserved].
(h) Special rules for plans subject to the Railroad Retirement Act
of 1935 or 1937. [Reserved].
(i) [Reserved].
(j) Special rules for plans subject to the International
Organizations Immunities Act. [Reserved].
(k) Established and maintained--(1) In general. For purposes of
applying this section (and not for any other purpose) with respect to a
governmental entity (which is an entity defined in paragraph (b), (c),
(d), (e), or (f) of this section), a plan is established and maintained
for the employees of a governmental entity if--
(i) The plan is established and maintained for employees by an
employer, within the meaning of Sec. 1.401-1(a)(2);
(ii) The employer is a governmental entity; and
(iii) The participants covered by the plan are employees of that
governmental entity.
(2) Changes in status--(i) Ceasing to be a private entity. If an
employer becomes a governmental entity (for example, as a result of a
stock acquisition) or a governmental entity becomes the employer under
the plan (for example, in connection with an asset transfer), the plan
(including all of the plan's assets and liabilities attributable to
service before and after the date of the change) will be treated, for
purposes of paragraph (k)(1)(i) of this section, as being established
by that governmental entity on the date of that change.
(ii) Ceasing to be a governmental entity--(A) General rule. Except
as provided in paragraph (k)(2)(ii)(B) of this section, if an employer
that is a governmental entity ceases to be a governmental entity (for
example, as a result of a stock acquisition) or a private entity
becomes the employer under the plan (for example, in connection with an
asset transfer), the plan (including all of the plan's assets and
liabilities attributable to service before and after the date of the
change) is treated, for purposes of paragraph (k)(1)(ii) of this
section, as being established by the non-governmental employer on the
date of that change.
(B) Exception. If a plan is established and maintained for the
employees of a governmental entity in accordance with paragraph (k)(1)
of this section (without regard to this paragraph (k)(2)(ii)) and, at a
subsequent date, the employer ceases to be a governmental entity (for
example, as a result of an assets transfer), the plan is treated as
continuing to be a governmental plan if--
(1) A governmental entity continues to be the plan sponsor after
the change (for example, a governmental entity assumes the plan on or
before the date on which the private entity becomes the employer
(including becoming responsible for the employer obligations with
respect to the payment of benefits under the plan)); and
(2) Benefits under the plan are frozen (with, if provided under the
plan, participating employees to receive credit for service with the
new employer for purposes of vesting, final pay adjustments,
entitlement to benefits such as early retirement benefits, and similar
service credit other than benefit accrual credit).
(C) Governmental liability for spun-off benefits. In the case of a
transaction such as an asset sale in which assets and liabilities of a
governmental plan are transferred to a private plan, the private
employer would be responsible for satisfying the minimum funding
standards of section 412 (including with respect to benefits
attributable to service performed before the date of the change).
However, nothing in this paragraph (k)(2)(ii) should be construed to
mean that, with respect to such a transaction, the assumption of
benefit liabilities accrued prior to the transfer to the private plan
would relieve the former governmental employer (or former governmental
plan) from responsibilities for those benefits.
(3) Plan coverage for employees of a labor union or plan. For
purposes of paragraph (k)(1)(iii) of this section, employees of
employee representatives described in section 413(b)(8) (including
employees of a plan) are treated as employees of the plan sponsor. See
Sec. 1.413-1(i).
(4) Examples. The following examples illustrate the application of
this paragraph (k):
Example 1. (i) Facts. Employer C, a non-profit corporation whose
principal place of business is located in City F, is not a
governmental entity. Plan B, a retirement plan, is established and
maintained by Employer C. In a stock acquisition, City F acquires
all the shares of stock of Employer C and, as a result, Employer C
becomes a governmental entity.
(ii) Conclusion. After the acquisition, Plan B is established
and maintained by a governmental entity. In addition, the employees
covered by Plan B are employees of a governmental entity. Thus, Plan
B, including the assets and liabilities attributable to benefits
accrued in Plan B
[[Page 69188]]
prior to the date of the acquisition, is a governmental plan within
the meaning of section 414(d) and this section.
Example 2. (i) Facts. Employer G is a hospital that is an agency
or instrumentality of State A. Plan J, a retirement plan, is
established and maintained by Employer G. Plan J satisfies the
requirements of this paragraph (k) and is a governmental plan within
the meaning of section 414(d). The assets of Employer G are
transferred to a non-profit corporation, Employer M, which is not a
governmental entity. All employees of Employer G become employees of
Employer M. As part of the transaction, Employer M assumes Plan J,
with respect to benefits accrued for service both before and after
the transaction.
(ii) Conclusion. Plan J is no longer maintained by a
governmental entity. In addition, the employees covered by Plan J
are no longer employees of a governmental entity. Therefore, Plan J
no longer constitutes a governmental plan within the meaning of
section 414(d) and this section. In order for Plan J to continue to
be a qualified plan, Plan J must satisfy the qualification
requirements relating to non-governmental plans, including with
respect to the assets and liabilities attributable to benefits
accrued in Plan J prior to the date of the sale. The same conclusion
would apply if the transfer were a stock transaction.
Example 3. (i) Facts. Same facts as in Example 2, except that,
on the date of the sale, Employer G freezes Plan J, so that
participants in Plan J are no longer accruing benefits under the
plan and all accrued benefits are limited to service before the
sale. In addition, on the date of the acquisition, State A assumes
Plan J, including responsibility for the payment of benefits
previously accrued to participants in Plan J.
(ii) Conclusion. In accordance with paragraph (k)(2)(ii)(B) of
this section, Plan J continues to be a governmental plan within the
meaning of section 414(d) and this section.
Example 4. (i) Facts. Pursuant to a State statute, State L
permits local towns and villages to establish recreational facility
authorities to build and promote recreational activities. Under
Statute K, unincorporated Townships M, N, and O (which are political
subdivisions of State L, within the meaning of paragraph (d) of this
section) jointly establish a recreational facility authority,
Authority R. Financing for Authority F is through local taxes and
fees. Authority R operates under a three-person board of directors,
one each appointed by townships M, N, and O. Authority R built and
operates a skating rink, Facility S, which is located in Township O,
but is open to the residents of Townships M, N, and O. Facility S is
wholly owned and controlled by Townships M, N, and O. Township O
maintains Pension Plan P for its seven employees, which is a
governmental plan under section 414(d). Township O amends its plan
to permit the three employees of Facility S to participate. The
employees of Facility S are not employees of Township O and are not
employees of a labor union described in section 413(b)(8).
(ii) Conclusion. The governmental plan status of Pension Plan P
is not affected by the participation of Facility S's employees
because Facility S is a governmental entity within the meaning of
section 414(d) and this section.
Example 5. (i) Facts. Same facts as Example 4, except that
Township O amends Plan P to permit participation by 10 employees of
candy and soft drink Vendor T, a supplier for Facility S. Vendor T
is not a governmental entity.
(ii) Conclusion. Plan P is no longer a governmental plan within
the meaning of section 414(d) because it provides benefits to
employees of a non-governmental employer, Vendor T.
(l) Employee. For purposes of this section, the term employee means
a common law employee of the employer (and the rules in section 401(c)
do not apply).
[FR Doc. 2011-28853 Filed 11-7-11; 8:45 am]
BILLING CODE 4830-01-P