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Legal and actuarial experts tell committee merger poses less IRS risk than reversion; recommendation to seek IRS determination and PLR
Summary
Legal and actuarial advisers told the Select Committee on Pension Policy that merging three closed Plan‑1 systems into a single "legacy" plan generally presents less IRS and tax risk than a termination and reversion approach, but both options require careful steps including obtaining IRS rulings and properly funding any restated plan.
Committee staff summarized new memos and legal analyses on two bills under study that would change how closed Plan‑1 systems (commonly called "Plan 1" systems) are handled.
"Private letter rulings are only binding on the exact entity that requests them," Aaron Gutierrez, committee staff, told the members, stressing the importance of seeking IRS approvals tailored to the state’s enacted language before any transfers or implementation.
Rob Goss, partner at Ice Miller (special counsel for federal tax matters), told the committee Ice Miller recommends filing both a favorable determination letter (to confirm the resulting plan is a qualified governmental plan) and a private letter ruling (PLR) to confirm there are no adverse tax consequences for members. "Each is a different transaction," Goss said, and both can take a year or more to obtain; he urged a delay between enactment and implementation to allow IRS review before any asset movement.
Ice Miller explained the legal distinction between a merger (5085) and a termination with…
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