Required Pre-2002 403(b)/457(b) Amendments?

[Guest CMStrength]

I've read several messages regarding the amendment of 403(B)/457(B) plans to comply with EGTRRA/GUST and such plans' application of the new proposed 401(a)(9) regs. Just for the sake of year-end "feel good" closure (and additional comfort as to several governmental 403(B)/457(B) plans that have just landed on my desk with insufficient time for boards to adopt amendments before 2002), I'd appreciate any comments/observations on the following:

1. Although there is no remedial amendment period for EGTRRA/GUST changes, will my late clients still be okay if their boards adopt GUST/EGTRRA provisions during 2002? I see that Tom Geer, on 10/8/01 raised the issue of IRS arguing that a plan has not been administered in accordance with its terms if EGTRRA/GUST provisions are not added by amendment before they are applied. Do any other issues come to mind?

2. I've seen conflicting commentary on whether non-qualified plans (403(B)'s, 457(B)'s, etc.) must affirmatively adopt (before 2002) the IRS model amendment for the new proposed 401(a)(9) regs when those regs have been applied for 2001. Tom Geer's observation (see above) seems relevant. Are there any other problems with waiting until 2002 to amend to specify that the new proposed regs were applied during 2001 (and/or will be applied for 2002 and later years)?

Thanks.

[Carol V. Calhoun]

My major concern would be whether there are any state legal or constitutional issues in amending the plan, particularly retroactively. Many state courts have held that a plan may not be amended in such a way as to disadvantage existing employees, even with respect to accrual of future benefits. To the extent that a change was retroactive, and unfavorable to any existing employee, this could be an issue. Of course, under a strict interpretation of this rule, even a change that was made before 2002 could create a problem, if it applied to individuals who were already employed at the time of the change. Fortunately, few of the recent changes have been unfavorable, so this has not been much of an issue in this set of changes. In the past, depending on the state, we've used various arrangements (e.g., excess benefit plans or simultaneous changes to 401(a) plans to restore lost benefits) to deal with these issues.