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Governmental Money Purchase Plan Documents

To order a governmental money purchase plan document:

Governmental money purchase plan documents can be ordered by completing our checklist and returning it to us along with the $315 fee to create the document. If the plan document is for an existing governmental money purchase plan, including a copy of the existing plan document will aid us in smoothing provisions between the existing plan document and the new plan document.

We use the information provided in the checklist to create your document customized to your specifications. Your document package includes the plan document, summary plan description (SPD), and adopting resolution. We can also include any administrative forms necessary to adopt the plan.

Our governmental money purchase plan documents are written by experience ERISA attorneys. Once the plan is adopted, use our consulting services to amend the plan or submit it to the IRS for a letter ruling.

We support our plan documents with a bi-monthly newsletter designed to keep you up-to-date with current developments and guidance issued by the IRS, DOL, and PBGC. Additionally, throughout the year, we hold seminars and webinars exploring specific specialty plan related topics.

General information about governmental plans:

On Nov. 7, 2011, the IRS released Proposed Rules on Determination of Governmental Plan Status.

Internal Revenue Code section 414(d) and ERISA sections 3(32) and 4021(b) define the term “governmental plan”. Code section 414(d) and ERISA section 4021(b) use the phrase “established and maintained” while ERISA Section 3(32) uses the phrase “established or maintained”.

Those sections were amended by Section 906(a) of the Pension Protection Act of 2006, Pub. L. 109-280, 120 Stat. 780, to include certain plans of Indian tribal governments and related entities as governmental plans. The IRS issued Notice 2006-89 providing guidance relating to plans established and maintained by Indian tribal governments. Notice 2007-67 extended transitional relief for plans of Indian tribal governments to comply with the requirements of Section 906 of PPA ’06.

In 2011, the IRS issued the proposed regulations because Code section 414(d) and ERISA sections 3(32) and 4021(b)(2) do not define key terms relating to governmental plans, including the terms “established and maintained”, “political subdivision”, “agency”, and “instrumentality”. When these proposed regulations were issued, there were no regulations interpreting Code section 414(d) and these proposed regulations were created to fill that regulatory gap.

Due to the existing regulatory gap, the IRS has used the analysis contained in Rev. Rul. 89-49 and Rev. Rul. 57-128 when issuing letter rulings to governmental plans. Rev. Rul. 89-49 sets forth a facts and circumstances analysis for determining whether a retirement plan is a governmental plan within the meaning of Code section 414(d). Rev. Rul. 57-128 provides guidance on determining when an entity is a governmental instrumentality for purposes of the exemption from employment taxes under Code sections 3121(b)(7) and 3306(c)(7).

Governmental plans are excluded from provisions of Title I and Title IV of ERISA and receive special treatment under the Internal Revenue Code.

Code section 414(d) Governmental plans are exempt from certain qualification requirements. They are:

  • Minimum participation standards and nondiscrimination requirements of Code section 410 and the additional participation requirements under Code section 401(a)(26)(G) do not apply to State or local governmental plans;
  • Certain State and local governmental plans are treated as meeting the requirements of the average deferral percentage (ADP) test of Code section 401(k)(3) and the average contribution percentage (ACP) test of Code section 401(m)(2);
  • Nondiscrimination and minimum participation requirements of Code sections 401(a)(5)(G) and 401(a)(26)(G);
  • Nondiscrimination and participation requirements application to qualified cash or deferred arrangements under Code section 401(k)(3)(G);
  • The top heavy requirements of Code section 416 (see Code section 401(a)(10)(B)(iii));
  • The minimum participation provisions of Code section 410 (see Code section 410(c)(1)(A));
  • The minimum funding standards of Code section 412 (see Code section 412(e)(2)(C));
  • Qualified joint and survivor annuities and qualified preretirement survivor annuities of Code section 417.

Code section 414(d) governmental plans are treated as satisfying the following requirements:

  • nondiscrimination requirements of Code section 410;
  • the requirements of Code section 411 if the plan meets the pre-ERISA vesting requirements (see Code section 411(e));

There are a number of special rules that apply to governmental plans. They are:

  • the 100 percent of a participant’s average high 3 compensation limitation do not apply to 414(d) governmental plans(see Code section 415(b)(11));
  • 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 and survivor benefits received from a governmental plan (see Code section 415(b)(2)(C));
  • benefits provided under a qualified governmental excess benefit arrangement are not taken into account in determining the section 415 benefit limitations under a Code section 414(d) governmental plan (see Code section 415(m));
  • permissive service credit (see Code section 415(n)).

To qualify as a governmental plan, the plan must meet these principal qualification requirements:

  • The plan is established and maintained by the employer for the exclusive benefit of the employer’s employees or their beneficiaries;
  • The plan provides definitely determinable benefits;
  • The plan is operated pursuant to its terms;
  • The plan satisfies the direct rollover rules of Code section 401(a)(31);
  • The plan satisfies the Code section 401(a)(17) limitation on compensation;
  • The plan complies with the statutory minimum required distribution rules under Code section 401(a)(9);
  • The plan satisfies the pre-ERISA vesting requirements under Code section 411(e)(2) (the plan must meet the vesting requirements resulting from the application of Code sections 401(a)(4) and (a)(7) in effect on Sept. 1, 1974);
  • The plan satisfies the Code section 415 limitations on benefits, as applicable to governmental plans; and
  • The plan satisfies the prohibited transaction rules contained in Code 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 Code section 401(k). (see Code section 401(k)(4)(B)(ii)). There is an exception for a grandfathered section 401(k) plan, which is generally a plan established before May 7, 1986, by a State or local government or political subdivision thereof. (see Treas. Reg. 1.401(k)-1(e)(3)).

Instead, governmental plans can offer an elective contribution program through an eligible governmental 457(b) plan which Code section 457(g) applies. In addition, Code 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.

Code section 414(h)(2) permits a governmental employer to pick up the contributions of a governmental employer which are designated as employee contributions under Code section 414(h)(1), known as “pick up contributions”, and treat those contributions as employer contributions.

Indian tribal governments are permitted to offer a cash or deferred arrangement under Code section 401(k).

Other code sections affected by the definition of governmental plans contained in Code section 414(d):

  • 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);
  • Sections 9831(a)(1) and 9832(d)(2) (exempting section 414(d) governmental plans from the group health plan requirements); and
  • 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).

Governmental plans are treated differently than plans of non-governmental entities with respect to certain requirements for 403(b) plans and eligible 457(b) plans, including:

  • Section 403(b)(1)(A)(ii), which provides that the exclusion allowance under Code 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 Code 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 Code 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 457(b) governmental plan is an eligible retirement plan for purposes of the rollover rules under Code section 402(c), so that payments from an eligible 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 457(b) governmental plan. Code section 402(c)(8)(B) defines an eligible retirement plan as an individual retirement account under Code section 408(a), an individual retirement annuity under Code section 408(b), a qualified plan, a 403(a) annuity, a 403(b) plan, and an eligible 457(b) governmental plan. An eligible 457(b) of a nongovernmental tax-exempt entity is not eligible for this rollover treatment.

 

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