The EGTRRA REstatement
January,
2008
EGTRRA is the Economic Growth and Tax Relief Reconciliation
Act. It was passed in 2001 and had a
significant impact on Qualified Retirement Plans. All Plans had to adopt a “good faith”
amendment starting in 2002 to comply with EGTRRA, pending a full restatement
that incorporates the EGTRRA provisions.
That time is nearly upon us. In late 2005 the Internal Revenue Service (IRS) announced a new
procedure (Revenue Procedure 2005-66) establishing regular restatement cycles
for qualified plans. Master, prototype
and Volume Submitter plans (so-called preapproved plans) are on a uniform
six-year cycle. Individually-designed
plans are on a staggered five-year cycle under this new procedure. The main purpose of this new procedure is to
help the IRS better manage its resources. It also provides for more stability for plan sponsors, ensuring that
they need only apply for approval of their plans on a predictable schedule. Revenue Procedure 2007-44 was issued earlier
this year to update the 2005 procedure and clear up some questions from that
procedure.
Individually-designed plans are plans that are not on a
preapproved document. Such plans include
ESOPs, Cash Balance Pension Plans, Multiple-Employer
Plans. Multiple-employer plans will be
able to adopt a preapproved plan starting with the EGTRRA restatement. Individually-designed plans must restate on a staggered five-year cycle that is determined by
the last digit of the Adopting Employer’s EIN (Employer Identification
Number).
The IRS is completing the approval process for all the
defined contribution plans that have been submitted by document sponsors. TSC is a document sponsor. The IRS will issue its approval letters to all
document sponsors at the same time, possibly by the end of March 2008. We
will begin working on the restatement of our clients’ plans immediately upon
approval. All plans will have two years
to complete their restatement. Defined
Benefit plans are on a different cycle. The restatement of those plans is scheduled to begin in 2010.
All plans have been operating under the EGTRRA provisions
since 2002, and the Pension Protection Act made permanent the EGTRRA
provisions, which were scheduled to “sunset.” This restatement in itself will not change anything in the way your plan
is designed and operated. Since EGTRRA
was passed, there have been other law changes, and other amendments to plans on
a yearly basis to keep them in compliance with the law. These will be incorporated into the restated
plan documents, or included as amendments that will be drafted with the
restated plans (as happened with the last restatement).
If you are contemplating any design or operational changes
in your plan, a good time to implement them is with your EGTRRA
Restatement. If you want to add “Roth”
deferral features, the plan must be amended by the end of the plan year in
which you do so. Safe-harbor 401(k)
provisions must be adopted before the beginning of the plan year in
which they are implemented, so adding safe-harbor for your next plan year may
be something to consider. Your
Retirement Plan Consultant at TSC is always looking at ways you might improve
your plan but there may be things we are not aware of that you have been
considering.
Following is a list of changes from the IRS that are to be
included in the EGTRRA document. |
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1. |
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Code §72(p) Final Loan
Regulations of 12-3-02. |
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2. |
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Code §401(a)(4) Amendments to
1.401(a)(4)-8 relating to new comp plans 6-29-01. |
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3. |
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Code §401(a)(9) Final RMD
Regulations of 4-17-02 and 6-15-04. |
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4. |
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Code §401(a)(17) Compensation
limit change to $200,000 subject to COLA from EGTRRA. |
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5. |
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Code §401(a)(31) Direct Rollover rule changes: |
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a. |
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after-tax rollovers in certain
situations. |
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b. |
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automatic rollover of certain mandatory
distributions effective 3-28-05. |
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c. |
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403(b) and 457(b) are added to the definition of
eligible retirement plan. |
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d. |
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hardships are excluded from definition of
eligible rollover definition. |
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6. |
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Code §401(k) |
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a. |
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Severance from employment is a distributable event for
elective deferrals. |
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b. |
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Safe harbor hardship distribution suspension from making
further elective or employee contributions is limited to 6 months. |
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c. |
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EGTRRA increases in 402(g) and SIMPLE deferral limits. |
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d. |
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Deferrals on post-severance compensation. |
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e. |
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Multiple use test eliminated. |
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f. |
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Final 401(k) and (m) Regulations, issued at the end of
2004. |
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7. |
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Code §402A Roth 401(k) deferrals, as applicable. |
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8. |
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Code §408(q) Deemed IRAs, Final Regulations 7-22-04. |
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9. |
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Code §411(a) Faster vesting of matching contributions. |
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10. |
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Code §411(a)(11) Rollover
contributions disregarded from determining involuntary cash-out balance. |
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11. |
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Code §414(v) Catch-up contributions. |
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12. |
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Code §415(c) lesser of 100% of compensation or $40,000
with COLA adjustments. |
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13. |
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Code §416, safe harbor exemption from top-heavy rules. |
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14. |
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Code §4975 plan loans for Subchapter S
shareholder-employees. |
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15. |
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Miscellaneous |
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a. |
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Money purchase merger into a profit sharing plan (Rev Rul 2002-42). |
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b. |
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PEO defined contribution plan guidance (Rev Proc 2002-21
and 2003-86) . |
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c. |
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Charging administrative expenses to former or current
employees (Rev. Rul. 2004-10). |
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d. |
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Deemed 125 compensation. |
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e. |
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Post-severance compensation. |
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