IRS Issues Advanced Notice of Rulemaking for Governmental Plans

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The Internal Revenue Service (IRS) on November 8, 2011, issued an advance notice of proposed rulemaking (ANPRM) on the definition of "governmental plan" for purposes of Section 414(d) of the Internal Revenue Code (IRC). The ANPRM sets forth an extensive discussion of the IRS's view on the characteristics of a governmental plan. It is important to note that the ANPRM is just the beginning of the guidance process. However, it offers insight into the IRS's criteria on how governmental plan status will be determined.

Section 414(d) of the IRC 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." By contrast, Section 3 (32) of the Employee Retirement Income Security Act (ERISA) uses the phrase "established or maintained." Of particular note, the ANPRM outlines certain "major factors" and "other factors" to be used to determine when and if an entity would be deemed to be an "agency or instrumentality" of a state or local government. The major factors to be evaluated include whether...

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