A Gray Day: Goodbye to an Old Friend

By David J. Kupstas, FSA, EA, MSPA

David J. Kupstas, FSA, EA, MSPA

David J. Kupstas, FSA, EA, MSPA Chief Actuary

I am registered to attend the national Enrolled Actuaries Meeting in April. I have missed this annual conference only once since 1997.  Unfortunately, a friend that has been there with me every time will not be joining me this year and may never again.  I am not talking about a fellow actuary.  I am talking about the IRS Gray Book.

Since 1990, every attendee at the Enrolled Actuaries Meeting has received a copy of that year’s Gray Book. The official name of this spiral-bound booklet is “Questions to IRS/Treasury and a Summary of Their Responses,” but everyone calls it “The Gray Book,” not only because it has a gray cover, but also because it addresses so many “gray areas” that we have in our business.

Here’s how the Gray Book works: members of the Enrolled Actuaries Program Committee and representatives of the Treasury Department and the Internal Revenue Service have a meeting a few months before the conference.  The committee members pose about 30 or 40 questions about pension law to the IRS/Treasury representatives, who give their responses.  These are not questions you can just look up yourself.  The questions do not have clear answers.  Situations come up which are not covered in the law or regulations, or which are covered but have ambiguous language or are otherwise subject to interpretation.  The idea is that if no one else knows the answer, why not ask the people that make the rules?

It was in the 2004 Gray Book, for example, that we learned we were apparently required to change to a particular actuarial cost method when a defined benefit plan was frozen. We knew that we were allowed to change to that method, but that was the first time we heard we had to change.  Based on that response, we had all our frozen DB clients change to that actuarial cost method going forward.

You might think that if you ask someone from the IRS a technical question and you get a response, that is the end of the story. Not so.  On every page of the Gray Book is the disclaimer that the responses “represent only personal views of the individuals who provided them.  Accordingly, the Response does not necessarily represent the positions of the Treasury or the IRS and cannot be relied upon by any taxpayer for any purpose.”  Note that they do not give “answers,” they give “Responses” (with a capital R).

The pension actuarial community has a love/hate relationship with the Gray Book. We cannot rely on these responses, yet what other guidance do we have?  Most people accept the responses and use them in their work, as we did with the cost method question.  Occasionally, someone will be a rebel and go against the Gray Book.  Sometimes, a response will conflict with one given several years earlier.  You might find the issues later addressed in official published guidance, either confirming what the Gray Book said or refuting it.  Sometimes, the IRS/Treasury will not respond to a particular question because it is controversial and being debated in their offices.

For all of its limitations, I like the Gray Book. I love it, in fact.  When I carpooled to Washington for this conference, I begged to arrive early enough Sunday evening to check in and get my Gray Book right away.  I would sit on my hotel bed, rip off the cellophane wrapping like it was a Christmas toy, and read through the Q&As, looking for surprises or confirmation that I’d been doing things right.

So you can imagine my disappointment when I received an e-mail last month stating, “Due to reallocation of resources at the IRS & Treasury, competing priorities, and government concerns surrounding reliance upon responses in the Gray Book, the Gray Book will no longer be produced.” Awww.  How sad.  I am aware that the IRS budget has been cut in recent years; that is no 151640__83358_1310560255_250_250shock.  I’m not sure what the concerns are about relying on their responses.  They clearly state that the responses cannot be relied upon, that they are the personal views of the officials.  I’d rather have this than nothing at all.

I will still go to the EA Meeting, but it won’t be the same without my Gray Book. I will walk around the conference with a lighter tote bag, grateful for all the past knowledge the Gray Book has given me and hopeful that one day the government will see fit to bring it back.

— Topics: 401(k), Retirement, Financial Planning