EGTRRA Amendments

[MarZDoates]

Has anyone begun amending their plans for EGTRRA? I know we have until the end of 2002, but I'm concerned about violating the anti-cutback rules if we wait that long. Thanks for the input.

[mbozek]

Some plans may have already been amended for some parts of EGTRRA such as fiscal yr plans which incorporated the 415 limits were amended upon signing in June. Since greater benefits/contributions are permitted under EGTRRA limits I am not sure what you mean by cutback issue if plan is not amended. Also note that 401(k) plans should be amended before catch up contribution is withheld from employees pay.

[KJohnson]

mbozek--Has the Service spoken on the issue of the timing of a catch-up amendment? Can't you just make it effectively available now and do the amendment at the end of the year?

[mbozek]

The IRS has issued model amendments. I think increasing comp to $200,000 for DC plan contributions and adoption of catch up provision should be in place before accruals are made. I assume that the 415 limit / rollover changes can be made by yr end. I think the timing of the amendments may depend on the type of plan - 401k may amend immediately in order to permit catch ups and therefore should add all EGTRRA changes in one revision. Non 401(k) plans can probably wait until yr even if contributions are not deferred until yr end. 403(B) plans are just subject to the law without the need to make amendments. Ptype, VS plans will follow sponsors instructions. Also I understand that tech amendments was enacted 3/9 so additional review will be needed before amendments can be adopted.

[Guest Ben S]

We are doing them one-by-one now.

Also if you have any borderline top-heavy plans, ALERT!!!

Get the new Key and TH items signed and in place before you run the risk of accruing a 2002 top-heavy contribution that you might have otherwise avoided if the new rules were in place earlier.

[MarZDoates]

Ben, I just looked at one of our border-line top heavy plans. By NOT adding back in distributions for 4 years prior to determination year, the plan becomes top heavy as of 12/31/01.

Employer did not want to have to fund a top heavy minimum in 2002. A couple of questions:

1) Would there have been any way to avoid the plan becoming top heavy had we "caught" this prior to 12/31/01 (i.e. freeze plan, terminate, etc.)

2) Could we go ahead and freeze or terminate the plan now to minimize employer top heavy contribution?

Any input is greatly appreciated. Thank you.

[Guest Ben S]

This is just my opinion and I am not an attorney, so get collaboration.

Sounds as if you became TH in 2001 regardless of any EGTRRA stuff.

I think, to avoid a 2002 TH minimum, you need to act fast at the very minimum. You would have to freeze or terminate NOW and still be able to make your case that nobody has accrued a TH minimum contribution. That case will depend largely on your Doc. You want to get a really solid opinion on exactly when the employees accrue that 2002 TH minimum. (For example, if the plan has the 1000 hr. requirement in place, maybe its around April or May.) Your plan might not require the 1000 hrs for allocations and then you might have an issue. So be careful. If you have beat that timeframe, then you are ok.

Have you concluded that adding EGTRRA wouldnt maybe pull the plan out of TH status? If so, the plan might want to suffer another year to get to the new rules.?? Also, remember the new use of the match will absorb some of the sting of the TH min. (if there is match).

Hope this helped a little.

[MarZDoates]

Ben, thanks for the input. The plan would not have been top heavy at 12/31/01 had we added back in the distributions for the 4 years prior to determ year. Sounds like I'd better get busy! Thanks again.

[BFree]

Do get a solid opinion of when a top-heavy minimum contribution is accrued. Since all active participants on the last day of the year get one, I'm not so sure why Ben S. refers to a 1,000 hour rule and April or May.