Q&A: Jim Holland

By Norman Levinrad • October 12, 2016 • 0 Comments

Many of us first heard of Jim Holland in the 1980s, when he was working at the IRS during the small plan audit program, so I thought Jim would be a good victim for an enews interview.

Norm: Jim, thanks for doing this interview. Had you worked in private practice before you started at the IRS, or was that your first job? 

Jim: No, I started at the IRS right out of college, but was doing actuarial calculations for estate and gift tax, which turned out to be an excellent way to learn about complex actuarial calculations, and provided other good experience. 

Norm: How long did you work for the IRS? 

Jim: When I departed I had 35 years with the IRS.

Norm: How have you enjoyed private practice since you left the Service? 

Jim: I have very much enjoyed private practice. There are areas I have been involved with that I would not have touched at the IRS. The Affordable Care Act (ACA) and the GASB standards for public plans are two examples. 

Norm: What would characterize as the main differences between private and government employment? 

Jim: The lack of bureaucracy is the main difference. The government has a lot of staff meetings and processes for getting things done. Private employment does not involve anything like that, which is good.

Norm: When you were at the Service in the 1980s you were heavily involved in the small plan audit program, correct? Obviously that program roiled the industry for a long time. Looking back, how would you assess the Service’s role in that program? Was it worth it for the government to expend resources on that? 

Jim: The words “small plan audit” bring back memories. What is somewhat humorous (today) is that I first learned of it from the Daily Tax Report, not from my superiors. Yes, it became a very emotional issue for the private sector especially. I think there has been some healing since then, and relations have improved. Looking back on it, things might have been better if there was a pilot program to begin with. The pushback and emotion would still be there, but fewer plans impacted. Also, early on the Service found that agents could not deal with the actuarial complexities and methods. That brought about the creation of the field actuary positions and the hiring that went with it.

Arguably, the creation of the field actuary positions was a good thing in the long run. Of course, the individuals who fill those positions have to be the right type of person, which combines technical knowledge, communication skills, practical understanding, and the other skills that a consultant should possess. 

It is hard to say whether the program was worth it. On the one hand, the Service found that actuarial resources were needed to examine defined benefit plans, and did find some bad actors (and the private sector was supportive in that respect). On the other hand, the timing and scope could not have been worse. Interest rates in the late 1980s and early 1990s had decreased substantially, and the individual defined benefit plans had terminated. The court decisions clarified the law concerning actuarial assumptions, but were a factor in leading to the imposition of interest rates and mortality tables by statute subsequently. 

If the objective was to bring in revenue, I suspect that the cost may have exceeded the revenue brought in. If the objective was improved compliance, there were better ways to achieve that without a large-scale audit program that took everyone by surprise. I think that experience better prepared the Service for conducting audits of abusive 412(i) arrangements in the early 2000s. Interestingly, agents wanted to know (and were comforted by the notion) that ASPPA was supportive of those audits.

Norm: You were involved in the drafting of the 401(a)(4) regulations, correct?

Jim: Yes, I was involved for a project that took 5 years. More humor: The last trial on the small plan cases finished in Phoenix on a Friday. All the attorneys on both sides took a week of vacation. I went right back to work on Monday morning for another meeting on the 401(a)(4) regulations. 

Norm: This is something that has guided the industry for the last 20 years, yet the IRS seem to take the position that sometimes following the clear letter of these regulations can be abusive. I don’t want to so much ask about the regs themselves, but am more interested whether you agree with the notion that when regulations are so detailed and complex, trying to cover every single situation, they can often collapse under their own weight. Given that you are now in private practice, what do you think about this notion? 

Jim: I lost a fundamental argument early on. If the issue was just discriminatory rates of benefit accruals, that was easy to put into regulations without having to specify how rates are determined. However, it was desired to have enough specificity so that any attorney (think private sector attorney) could look at the facts, have calculations done, and definitely say whether nondiscrimination was met. Thus, it became rule-oriented and very detailed. And, because every situation was not envisioned, someone can easily follow the letter of the regulation and have a situation that many would consider abusive. 

I still prefer my original desire, which was to address the underlying concern but to leave out the detailed set of rules that we have now. Common sense would apply without, for example, the need for a long list of allowed exceptions (or clarifications) to safe-harbor formulas. So, I am in general agreement that long detailed regulations that cannot possibly cover every situation are not good.

Norm: Some of us feel the Service has sometimes crossed the line between clarifying law via regulations, versus making law itself — for example, with the NRA 62/separation-of-service regulations. Again, given your experience on both sides of the spectrum, how would you assess that feeling? 

Jim: I can understand that feeling. It is not an easy answer because Congress much too often leaves gaps that industry wants filled in by regulations. The regulations under 401(a)(9) are a good example. Originally, after the Deficit Reduction Act of 1984, there were about half a dozen questions that were going to be answered. However, practitioners kept asking questions and raising situations. The regulations started to grow and had to be addressed on their own. Everyone wants their situation addressed. 

Also, on the larger point, there are some (hopefully a minority) of practitioners who take the viewpoint that, unless there is a specific rule against it, any scheme they can come up with is allowed. We saw some of that prior to the normal retirement age regulations. A number of large firm practitioners were trying to avoid rules by using 5 years of service as the NRA. The response was to go back to the pre-ERISA view, but put it in regulations, which carried more force than a revenue ruling. I think that some dialogue would help to dispel the feelings about “making law.” I found that, as a regulator, I went out and explained the concern and reasons for what was done, practitioners would listen and actually support the concepts, assuming they had merit. I personally experienced that a number of times. My sense is that a similar dialogue is not taking place today, which is not good for anyone.

Norm: Are you a nerd? Do you have any exciting hobbies that would dispel the vicious rumor that all actuaries are nerds? 

Jim: Well, there are those who would say that all actuaries are nerds. By that standard, I am. However, my spouse would easily tell you about my second job, which is playing tennis. Three to four times a week. Tennis and reading science fiction tends to occupy my recreational time.