I'm reviewing a governmental plan for takeover and was provided a New England Prototype document that was executed in 1996. The Opinion Letter dates from 1990. We would like to amend and restate the plan using our EGTRRA Volume Submitter Plan. The client claims this is the most recent plan document.

Although the prototype subjects the plan unnecessarily to some ERISA requirements that are normally exempt for governmentals, I'm questioning if the plan document should have been updated through the years. Are the compliance rules for plan docs the same as they are non-governmental plans? Thanks.

Governmental plans are not subject to certain requirements, but are subject to others. If the document is of 1990 vintage, some formal compliance changes have been missed, and maybe the related operational compliance. too.

Are you for real?

Government employers cannot adopt prototype plans because they are statutorily exempt from all ERISA requirements that are contained in the ptype plan as well as many IRC requirements, e.g., vesting, top heavy plans, J & S annuities, etc. that do not apply to govt plans. Unlike church plans, Govt plans cannot waive the exemption from ERISA. Also Govt plans are exempt from PBGC requirements for DB plans.

Govt employers can only adopt an individually designed plan that contains the IRC provisions that apply to to public plans without any ERISA provisions.

What type of plan is this?

Am I for real? Let me check...ok, I passed the reality check!

But seriously for a moment, a governmental employer can adopt a Volume Submitter (at least they can adopt ours), and have the proper exemptions that apply to such entities. I understand and appreciate your concern about the exiting document, but my underlying question is perhaps does the client need to be concerned that the current plan exists on a 1990 prototype? Would EPCRS need to be considrered to "correct" the plan before EGTRRA? I typically work with non-govermentals, so that's the reason for these questions.

This is a profit sharing plan, according to the existing prototype document.

Here are three questions that you need to answer:

1. Was the plan adopted by the govt employer a prototype or a volume submitter? As I understand it in the past the IRS has approved volume submitter plans which did not contain ERISA provisions which could be adopted by government employers but govt employers were not allowed to adopt a prototype plan because of the mandatory ERISA language that all prototypes are required to contain which do not apply to government plans. If a government employer was not permitted to adopt a prototype plan then the question is whether it ever validly adopted a qualified plan in 1990. You need to check to see if EPCRS is available if the government employer was not eligible to adopt the prototype plan and was not allowed to rely on the favorable determination letter issued by the IRS to the prototype sponsor.

2. Government plans are exempt from the nondiscrimination provisions of IRC 401(a) that apply to employer plans subject to ERISA. Assuming a govt employer could adopt a prototype plan, if a government plan is not required to comply with the changes in the IRC that apply to private plans that have been enacted since 1990, e.g., Gust, EGTRRA, PPA, etc, does the failure of the government employer to adopt these non applicable provisions in a protoype plan disqualify the plan?

3. Is a government plan that voluntarily subjects itself to ERISA and the IRC discrimination provisions by adopting a prototype plan containing such provisions violate state laws that conflict with the ERISA provisions as well as the IRC non discrimination provisions that do not apply to government plans? Do employees have the right to sue the employer for violation of state law?

Thanks mjb for distilling it down. At this point, I'm going to suggest the client have ERISA counsel look it over.

How about using the prototype with an amendment, appendix or exhibit that makes the provisions required only for nongovernmental plans inapplicable?

TL, I'm not sure what you're suggesting. Going forward, the Volume Submitter plan has an election to remove provisions not applicable to Governmentals. My concern was for the existing document since it's from the 1990s and has ERISA provisions.

Yeah, that's a problem. Mayne there's something like what I suggested in a drawer somewhere. The person most motivated to find a way out should be whoever drafted the plan before, so I'd contact them and see if they have anything.

Note that governmental plans are not subject to 411, and in particular not to 411(d)(6). So it should be easier to cut back on employee ancillary rights. However, I've never encountered your facts so I don't know to what extent pre-ERISA law prevented cutbacks. In particular I'd be worried about alternative forms of benefits that affect the actuarial value value of the participants' rights, and would consider a wear-away approach to be cautious. But I'm just shooting from the hip.

Although 411d6 might not apply, state law does as mjb points out. Most of the state law I've looked into uses employment contract principles to prevent cutbacks.

For what it's worth, I've seen favorable determination leters issued for prototype plans adopted by a governmental unit.