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IRS proposal provides retirement plan flexibility CUNA
WASHINGTON (2/7/12)--The Credit Union National Association (CUNA) has said it supports the Internal Revenue Service's (IRS) efforts to clarify the process for determining whether a retirement plan an entity offers is a governmental plan, but also suggested ways the proposal could be improved in a recent comment letter.

The IRS is working to establish rules that would provide general guidance relating to the determination of whether a retirement plan is a governmental plan within the meaning of section 414(d) of the Internal Revenue Code, as there currently are no regulations interpreting this section of tax code, CUNA said.

Under the IRS proposal, a governmental retirement plan would be a plan that is established and maintained for its employees by the government, an agency of the government, or a "governmental instrumentality."

CUNA said federal credit unions have an interest in this issue because certain federal credit unions offer retirement plans to their employees that are considered non-governmental plans.

The IRS would determine which retirement plans do and do not meet these standards through a facts and circumstances test. That test asks whether an entity offering a given retirement plan performs or assists in a governmental function, is exempt from federal, state, and local tax, or receives financial assistance from the government, among other questions.

CUNA generally agreed with the proposed facts and circumstances test, as outlined, saying "it is the correct approach to outline a number of varying factors since the characteristics of employer-entities vary so widely." CUNA added that the proposed test "appears to recognize that a one-size-fits-all approach is inappropriate," but suggested that some of the terminology in the test questions could be sharpened and suggested the IRS add a question addressing how a given entity's trustees or operating board are selected to the test.

The IRS should also clearly state that the list of factors included in the proposed facts and circumstances test is not meant to serve as a checklist, CUNA added.

The ANPR also includes an example to illustrate the application of the facts and circumstances test to a federal credit union. In the example, the IRS concludes that FCUs are not governmental instrumentalities for purposes of section 414(d) based on the facts and circumstances test. CUNA said it supports this example, but suggested the IRS clarify portions of the explanation to demonstrate which factors from the facts and circumstances test led the IRS to make this determination.

For the full comment letter, use the resource link.


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