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.