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<br />agents and submitted to the pension boards in July, were approved and were recommended for <br />adoption by the City. Mr. Mug stated that none of the changes were substantive in that none of <br />them affected the cost to the City in providing benefits or the benefits received by the <br />participants. He provided a few examples of the changes that were made in order to bring the <br />plans into compliance. Mr. Mug stated the determination letter issued by the IRS and is <br />conditioned on the adoption of the changes the requested by the IRS. <br /> <br />Mayor Welsch asked if the changes made were standard IRS terms and had nothing to do with <br />the City’s plans or was the City doing something wrong that needed to be corrected. <br /> <br />Mr. Mug said they were fairly standard language changes. <br /> <br />Mr. Kraft asked what happened if a plan was not in compliance; how it was determined not to be <br />in compliance; and what the penalty was if not in compliance. <br /> <br />Mr. Mug stated if a plan was not in compliance, it was either determined like the City did by <br />making the changes and going to the IRS and asking for forgiveness or otherwise it aroused on <br />a retirement plan audit. He noted the City’s issues are not unique. Mr. Mug said if the plan was <br />found not to be in compliance the IRS could disqualify the plan but that is rarely done, as the <br />IRS does not want to hurt the participants. He said it is more likely the IRS would seek to bring <br />the City into a closing agreement program with a dollar penalty which would be dependent on <br />the plan size. <br /> <br />Mr. Kraft asked to clarify the extreme penalties, if the plan was determined not to be in <br />compliance with the IRS, since the City is not a tax-paying entity that is liable for taxes. <br /> <br />Mr. Mug said the trust itself would be a taxable entity, which is separate from the City. The trust <br />would pay taxes on the income that it had from the date the IRS determined it was not qualified. <br />The second level of taxes would be imposed on the participants because they would then be <br />participants in a non-qualified deferred compensational arrangement. <br /> <br />Mr. Kraft asked if the definition of a participant was someone receiving benefits or someone who <br />has been with the City for a while and all of a sudden the money that was set aside becomes <br />theirs and would they then have to pay taxes on this. <br /> <br />Mr. Mug said the participants would pay taxes on all of the open years they had based on the <br />calculation of what sort of benefits they earned. He said these funds would not qualify for roll- <br />over funds or IRAs. <br /> <br />Mr. Kraft said to clarify then, the people who would be at risk are the participants, not the City? <br /> <br />Mr. Mug agreed the tax risk would be on the participants not the City. <br /> <br />Mayor Welsch asked what kind of schedule the City should be on for routine updating. <br /> <br />Mr. Mug stated the IRS was told that part of the procedure for the voluntary compliance is to say <br />how the City would avoid making the same mistakes again. Mr. Mug said the IRS has been told <br />2 <br /> <br /> <br />