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TRIBAL UPDATE: PPA 06 TRANSITIONAL RELIEF PERIOD EXTENDED
As many of you know, the Pension Protection Act of 2006 (PPA 06) was signed into law August 17, 2006. This Act contains provisions that may affect your tribal benefit plans (retirement plans as well as health, life, disability, etc.). The new legislation is effective for plan years beginning on or after January 1, 2007.Notice 2006-89 previously granted Tribes a transitional relief period until September 30, 2007 to get all benefit plan documents in compliance with the new law. Notice 2007-67 now extends the transitional relief period "to the date that is six months after guidance is issued under ยง 414(d) of the Code, as amended by section 906 of the Pension Protection Act of 2006". Of course, we don't know exactly when that guidance will be issued, but we will keep you updated.
Let's refresh our memory!
As described in the Act, governmental plans for Indian tribes will only include those in which all of the participants perform substantially all of their services in essential government functions and not commercial activities. Employees engaged in commercial operations owned by tribes will not be treated as government employees under the Internal Revenue Code or ERISA, and consequently, any benefit plan covering such employees will not be considered a governmental plan.
The plans covering employees of commercial enterprises must have documents that include all of the proper language, including ERISA's claims procedures and participants' rights statement. In addition, benefit plans subject to ERISA must comply with all of the participant disclosure requirements, file a Form 5500, have an ERISA plan audit done each year (if plan has more than 100 participants), and pass various coverage and nondiscrimination tests.
Some Tribes may choose to sponsor only one plan covering all employees. This plan would need to be an ERISA plan and would have all of the same requirements mentioned previously. The reason for doing so would be simplification and cost control. Be aware, though, that an unintended result of this strategy is that employees can file complaints with the DOL as well as bring legal actions against tribal employers in federal court. Remember that the DOL and IRS have enforcement responsibility over ERISA plans and can audit ERISA plans of tribal employers. If you choose to separate your benefit plans, note that the plans for your government employees should be drafted and operated as governmental plans not subject to ERISA.
Who can take advantage of the "transitional relief period"?
An assessment must be performed for each benefit plan in order to determine what steps must be taken to ensure compliance with the new law. Many complex issues must be considered when determining the best course of action for tribal employee benefit plans. Keep in mind the transitional relief period is only granted to those tribes who are "operationally" compliant with the new law for plan years beginning on or after January 1, 2007. So, even though there may be additional time to get all of your documents in order, you must currently operate your plans covering commercial employees as ERISA plans, or segregate these employees into separate plans.
We have been privileged to consult with Native American tribes on employee benefit plan issues for many years, and would be pleased to help you with your deliberations. Call Dennis Davis, Lisa Wilcox or Carol Cochran at 505-998-3200 for assistance.