| TO: | National Board of Directors |
| FROM: | Chuck Canterbury, National President |
| RE: | RHS Product |
| DATE: | November 10, 2006 |
During the past few weeks we have been diligent in reviewing all of the material provided to the NFOP from the ICMA group, as well as the Groom Law Group.
The one thing that we are sure of is that no member will lose any funds, nor will any member be responsible for any interest or penalties from participating in the ICMA RHS. The program has not been deemed illegal, but there are provisions that the IRS has stated do not fit into the current IRS regulations. Their remedy is to disallow the program to continue in its current form.
The ICMA plan that was in existence prior to the FOP plan has IRS approval, but requires mandatory participation of the group. Our plan was designed to fit our needs, but the voluntary aspect of our plan has been disallowed by the IRS.
ICMA has made the following proposal to the IRS:
The program will now have a date certain for discontinuation of all contributions. ICMA has made a number of proposals to the IRS, with proposal dates of December 31, 2006, and December 31, 2007 (see attached document). Even if the program is allowed to go forward, it will be for a very limited time period for all contributions. The big "if" that is proposed by ICMA is the election options for accrued leave contributions. ICMA proposes a special one-time transition rule for previously eligible participants who have not made an accrued leave contribution election (if the IRS agrees).
Thus, if the closing letter is accepted, we are left with the following:
- 1. Those individuals who want to keep their funds in the plan may be allowed to do so without any tax consequences, if the Closing Agreement is accepted.
- 2. Individuals may now opt-out and receive their contributions net taxes.
If the Closing Agreement is rejected and the program is closed, then the funds would be returned to the individual net taxes as well. The only thing that seems certain is that participants will not be required to pay interest or penalties.
ICMA is desirous of working on the plan that is currently covered by the Private Letter Ruling. That Private Letter Ruling relates to those individuals who have collectively bargained for this program and is mandatory. None of our lodges currently have such an agreement. This is known in the FOP as the (Long Beach Plan). This option is IRS-approved, but is mandatory for the group.
You may recall that ICMA relied on the opinion of the Groom Law Group in developing this program. ICMA argues that they have made a significant good-faith, compliance effort to follow the RHA guidance of authorities and other authorities over the last five years.
It is my belief that members should stop contributions as of December 31, 2006, and then exercise one of the two options listed above, if they are both available.
We will be focusing on developing legislative action that will provide for our program and we will keep you up-to-date on that effort.
We will continue to seek products and services to assist our members in the area of health care.
Thank you.