Paul Shultz, Director, EP Rulings & Agreements, is responsible for all forms of guidance affecting retirement plans, the determination letter program and the voluntary compliance resolution program -- and for the personnel administering these programs. 

Prior to coming to EP, Mr. Shultz had more than 30 years of experience as an employee benefits lawyer in the private sector.  He has served Of Counsel for a well-known law firm, where he focused on sophisticated employee benefit issues encountered by large employers.  He has also managed the legal resource group of a prominent consulting firm specializing in employee benefits and human resources services to major businesses, governments and other organizations.  Mr. Shultz is a graduate of Princeton University and received his Juris Doctor with Distinction from Cornell Law School, where he was Managing Editor of the Cornell Law Review.

You’re midway through your term as Director of Rulings & Agreements – what are some of the changes that you’ve seen so far in EP?

The most dramatic event I have witnessed is the change in the culture of the IRS.  Before our eyes, we have seen people move progressively toward a customer-focused approach with concern for the stakeholders and an embracement of partnering with our customers.  Coupled with this has been a growth in our employees’ move to thinking strategically about what our IRS mission is and how to accomplish it.  Following these changes, people have become more open to new ideas, and are more willing to state what is on their minds, even if it may be inconsistent with views of their superiors.  And finally, IRS employees have begun to realize that we are truly, finally, in the midst of real change in our organization.

What accomplishments or improvements in that time have made big impressions upon you?

Major accomplishments and improvements are best seen in different areas.  In the guidance area, we have improved our way of working with Treasury and Chief Counsel to develop guidance by focusing efforts through “small groups” before bringing issues before the “large group” that includes persons who need to make the calls on major issues.  Some of the major guidance items are:

• The publication of the revenue procedure on Professional Employment Organizations that enables IRS and taxpayers to resolve many cases that have been tied up in the ruling process for many years (note, see the article on PEOs further on in this edition);
• The completion of the decision process on cash balance plans, which will enable publication of guidance by the end of September;
• The completion of significantly improved minimum distribution regulations under Code section 401(a)(9);
• Our rapid and effective response to passage of pension reform in EGTRRA in 2001; and
• Our response to our customers’ needs in connection with the disasters of the fall of 2001.

In the determination letter area, we have also done many good things including:

• Marshaling all the resources needed to prepare for the large number of GUST applications;
• Streamlining the process, making some applications unnecessary and making others use less resources of both customers and the Service;
• Early on, focusing needed resources on completion of M&P; and VS plans, enabling the adopters to apply as early as possible;
• Applying resources to an extensive screening program at the appropriate time; and
• Devising methods of providing internal guidance for employees working the determination letter applications. 

The Voluntary Compliance (VC) organization stood up earlier this year, bringing to fruition a major idea that began in the early stages of modernization.  Some of the major accomplishments this year include:

• Completing the staffing of four VC groups;
• Creating national procedures for each EPCRS program and providing on-time training;
• A smooth transition of case inventory from Examination groups to the new VC groups;
• Developing methods for improving case processing consistency;
• Coordinating with Examination and Customer Education & Outreach (CE&O;) to address cross-functional concerns; and
• Revising the EPCRS revenue procedure.

The Technical Group processed all of the M&P; applications while continuing to move key private letter ruling and technical advice requests.  By the way, Technical is now in the midst of rethinking the way it does business, which surely will lead us to find ways to perform better and faster and cheaper. 

The determination letter program for GUST is winding down.  What are your thoughts on how the process went this time?

The dragon was nine-times tall and we shrank the dragon to five-times tall.  We had anticipated almost 300,000 applications.  Our changes in the program reduced the receipts to 150,000 applications.  And, on average, we found ways to make those received far less burdensome, both on customers and on us.  This was a program where many tugs were working to provide direction to a super-sized aircraft carrier.  We needed to provide a lot of communication to all involved, and we did.  This was achieved with good help from the people in Cincinnati Determinations and Determinations Quality Assurance (DQA) groups, and the people in our Published Guidance group here in Washington.  We are currently working to make the DL process even more efficient by ensuring that when screeners find appropriate cases, they move them on to full review at the earliest opportunity.

Speaking of the determination program, what pleased you and where do you think improvements can be made?

We were all delighted and excited that we were able to identify and implement so many good and innovative improvements such as:

• Making Form 5307 optional;
• Making nondiscrimination testing optional; and
• Providing new forms.

Further improvements we expect include switching the many examination agents who really work determinations on a full-time basis over to become part of the determinations organization.  This will facilitate operations in the determination area.  Also, as mentioned above, we anticipate that the screening work will continue to improve in its efficiency.  We need to find ways to apply specialization to some applications, such as ESOPs, cash balance plans and multi-employer plans. Implementation of an electronically based system - TEGE Determination System (TEDS) - will significantly change the way we process applications.  And we also have the long-term question of what we will do with the DL program.

Continuing the Determination Letter (DL) program theme for just a bit longer, tell us about the White Paper and public comments about the determination letter program.

Of the 10 or so options set forth in the White Paper, few were found attractive to the public.  Many people have supported the staggered approach, where a DL would be treated like a motor vehicle license with plans coming in once every five or eight or 10 years, but all with different dates so that there would be a steady and smooth level of work.  Others liked the concept of IRS outsourcing the determination letter process.  And some supported the requirement of doing amendments immediately – i.e., the end of the following year - both for law and guidance changes.  We will be summarizing and then publishing comments made.  Then we will reissue the White Paper with a development of discussion on the favored options.  From there, we will carry on the dialogue and see what consensus develops in the employee benefits community.  Personally, with regard to the staggered approach, I have concerns that the complexity and potential for confusion of adopting such an approach are not fully appreciated.  My own personal guess is that the TEDS electronic administration system will make the current program much more workable and efficient.  Couple that with the migration of many individually-designed plans to the pre-approved universe and the issue of periodic large numbers of applications may become less problematic.  TEDS might also make the option of requiring immediate amendments for law changes and for guidance changes more palatable, more desirable from both a plan administration and a participant rights point of view.

Let’s switch gears: we know that the priority guidance plan for 2002-2003 has been announced.  What pieces of guidance can practitioners expect before the end of calendar year 2002?

By the end of this calendar year, we should see two major pieces of guidance: proposed regulations on the application of the age discrimination provisions (section 411(b)(1)(h)) to cash balance plans and proposed regulations combining and updating our various guidance affecting sections 401(k) and (m).  Other guidance that may appear before the end of the year include final regulations on:

• Participant loans under section 72(p);
• Required minimum distributions relating primarily to defined benefit plans;
• Catch-up contributions; and
• Retroactive annuity starting date in section 417(a)(7).

Other possible items include proposed regulations on communications to participants concerning the relative value of lump sum distributions and available annuity amounts and perhaps some guidance on section 72(t) as to what are substantially equal periodic payments, on ESOPs and on the aggregate entry age normal funding method under section 412.

The EPCRS program is quite a success.  What are your thoughts on VC? On it’s evolution?

I remember well when the voluntary compliance program first began in the late ‘80’s under Marty Slate with APRS and VCR.  To my thinking, this was the first glimmer of the EP’s true accommodation to customers.  The program (or programs) has undergone an evolution throughout the ‘90’s and has now matured into a single program placed in Rulings & Agreements.  This maturation can also be considered a unification of three programs, all within the jurisdiction of the Voluntary Compliance organization under the leadership of Joyce Kahn (or perhaps almost all since the implementation of Audit CAP - and self correction, also - remains under Examination, but closely coordinated with VC).  Coordination between VC and Examination is the key to the success of all of these programs. We are finding that the broadening availability of self-correction is leading to fewer cases in VC and Audit CAP.  This is one more way to facilitate compliance, which benefits both participants and plan sponsors.  We will continue to watch for ways to fine-tune the VC program in the future.

Earlier in this interview, you mentioned the role of EP Technical in the DL process and also that EP is rethinking about the way Technical works.  What role do you envision for EP Technical?

Inventory of work - Private Letter Rulings, Technical Advices, M&Ps;, actuarial rulings - has been declining and raises the long term question of how many employees we need to do the work of Technical.  We think there are a good number of customer support projects that we can add to Technical’s repertoire and we plan to do so over the coming months, working in conjunction with CE&O; and Technical Guidance.  We can use our enormous wealth of talent and knowledge in Technical to do soft guidance, checklists, outreach efforts, articles, and other customer assistance.  We are also "reengineering" Technical so that what they do is done faster, cheaper, better. It is our intention that their customers - both external and internal - will use Technical more in the future.  We plan to focus on common issues and common plan types and develop knowledge bases on those issues so that we can address them more efficiently.  For example, a large proportion of Technical’s cases involve governmental plans and another large proportion involves church plans. 

The Service, in general, and EP, specifically, are working to improve Quality Assurance (QA).  What are some of your ideas for achieving this goal?

We have two units dedicated to QA  -- Determinations Quality Assurance (DQA) and Technical Guidance and Quality Assurance (TGQA).  DQA has been working overtime for the past two years coming up with new and successful products, including:

• The “road show” where Reviewers from DQA go out to areas and review DL issues with determination agents;
• The TQMS program;
• Establishment of the Technical Clearinghouse to support determination agents during the crunch;
• Adding staff to the basic review effort, but using many different locations; and
• Distributing a weekly Internet site email.

They are keeping up the search for new ways to support QA in the determination area. 

TGQA serves as the final arbiter of all technical issues in EP – for both internal and external guidance - including PLRs and technical advice cases.  TGQA also supports the CE&O; efforts by reviewing all technical matters covered in the Employee Plans News and elsewhere.

What areas do you see EP working on developing next?

One of the major efforts over the next year will involve the movement of agents from examinations to determinations and all of the coordination that will take.  Second, we need to complete our work on “reengineering” Technical so we can do letter rulings and technical advices faster, better and cheaper and perhaps re-deploy some of our Technical resources into support for customer needs and outreach.  Third, we will continue to get Voluntary Compliance up and running so that all VC cases are under its control.  Fourth, we need to integrate the new TEDS system into the DL program.  Fifth, we need to see the cash balance guidance proposals through to final form and then take care of all the cash balance plan cases we have in on technical advice.

Would you give us an example of how elements within EP can work together?  For example, is there a scenario you see where people in Determinations, CE&O; and VC work together for one customer?

In many - perhaps most – situations, different elements of EP work together.  On small employer compliance, Examinations, CE&O; and parts of Rulings & Agreements, such as Guidance and Determinations, work together to find the many ways we can help enhance compliance by the small employer universe. 

Similarly, on the Determination Letter program, all parts of EP have contributed to the success: 

• Guidance by helping refashion the program for increased efficiencies;
• Examinations to supply much of the resources needed to handle the Crunch;
• VC to help with the many “special” cases that come into Determinations that need corrections; and
• CE&O; to help get out the word on how to handle some of the knotty problems practitioners face in filing applications.

I am sure we could give lots more examples.

Back to the EP Determination Letter White Paper for a moment.  Should we expect any more White Papers?

As for the Determination Letter program, we discussed before our intention to reissue the White Paper with more modeling of what appear to be the preferred options. As for White Papers on other areas, we do not have any currently in the works.  Perhaps the readers have some suggestions?  (Editor’s Note: Please send your suggestions to RetirementPlanComments@irs.gov )

Any comparison between private practice and the public sector?

Private practice and public sector work are indeed vastly different.  In government, motivation does not come from the desire for profit, but rather from idealism, the desire to make a positive contribution to the public good.  Government employees in my experience are highly ethical persons, which is also generally true in the public sector.  In government, I have been impressed by the relative lack of competitiveness - most employees and managers really view themselves as on a team, the same team.  IRS employees are often idealistic persons, persons working at the IRS because they want to make a contribution.

You’re an avid fisherman.  Do you get any ideas for improving EP while you’re hip-deep in water?

To tell the truth, no.  One of the wonderful things about fly-fishing is the total focus on fishing while you are doing it.  Honestly, I have no thoughts of work whatsoever, only how to outwit those beasts in the water with brains the size of a pea.  The benefit of fishing is that it totally clears the mind. When I come back from fishing, I am energized and can give work the same kind of total focus, and indeed I personally get the same kind of satisfaction from total focus on various tasks at work.

Crystal ball time: How do you envision EP in five years? 10 years?

In five years, I would guess that TEDS, the electronic DL administration program, should be up and running and giving a lot more speed and efficiency. I would also guess the DL program looking somewhat different then with one of the long-term options having been put in place.  In my view, that option will probably be the one that provides for immediate adoption of changes for both law and guidance changes.  But this will not be the hassle for employers it might at first seem - it likely will be done semi-automatically for most employers as most will by then be covered by a pre-approved plan and pre-approved plan sponsors will be adopting these changes on a continuing basis every year on behalf of all adopters.  So, this will mean plan documents at maximum compliance with minimum hassle for employers.  Well, maybe that won’t be until 10 years from now... 

Technical will look much different in five years with fewer employees and a different mix of work - more focus on assistance for employers.  Voluntary Compliance will likely be about the same, perhaps smaller, as we see more and more types of self-correction made available.  Guidance will likely have grown a little, but not much, as legislation and regulation continue to grow in the retirement plan area.  Determinations and DQA will both be national organizations and perhaps need fewer employees because of the advent of the TEDS system. 

Where will we be using our EP employees more?  Not necessarily in Examinations – more likely in outreach and customer assistance.  We will all increasingly be extensions of our CE&O; element.  And that is where we should be moving - to assist in more up-front compliance. 

To see where we will be in 10 years, we need to extrapolate out from the directions postulated for the five-year period.

Crystal ball time Part II: What do you see yourself doing in five years? 10 years?

In five years, I am quite sure - if I am alive and my health holds out - that I will be fly-fishing full-time, living in my home in upstate NY during part of the year and during the rest touring the USA in an RV, camping near famous trout streams, hiking to high mountain lakes, floating gorges in a drift boat, all in pursuit of rainbow, brook and brown trout.  In 10 years, I hope I will still be fly-fishing, and all the rest!