EGTRRA and 404 Deduction Limitations

[Blinky the 3-eyed Fish]

My understanding of the new rules for plan years beginning in 2002 is:

1 - Now small plans (100 or less participants) can deduct up to the unfunded current liability, without regard to plan amendments made within the last 2 years for HCE's.

2 - Terminating plans can deduct up to the amount needed to make the plan sufficient for all benefits, not just guaranteed benefits.

Is this correct?

Now back to #1; my software references amendments made to professional service organizations as playing a role. I cannot find any information on how this relates. Any ideas?

[MGB]

2. is not exactly correct. It is the termination liability as defined in PBGC regulations under ERISA 4041(d), which includes PBGC assumptions, XRAs, etc. I am sure that common practice will ignore this and do what you describe.

1. contained a drafting error in the conference committee at the last minute. (Remember that EGTRRA was thrown together from competing proposals during a 48-hour round-the-clock conference.) The purpose of the provision was to protect the PBGC by allowing full funding of current liability. However, professional service employers with less than 25 employees are not covered by the PBGC, so this provision was not supposed to apply to them. Both the House (Portman-Cardin) and Senate (Grassley-Baucus) bills (before the conference) included a new clause 404(a)(1)(D)(iv) that stated this provision did not apply to these employers. Then, during the conference, they decided to add an additional clause (v) with your item (2) describing the termination liability. However, they made a mistake and overlaid the existing clause (iv) (PSC exception) with the new termination provision. When EGTRRA passed, the title of clause (iv) still stated "Plans maintained by professional service employers," but the content was the termination language and there was no clause (v). In a technical correction under JCWAA, the title was changed to reflect the actual termination language of the clause. Surprisingly, they continued to allow the PSCs to have this deduction even though the legislative history clearly did not want to extend this provision to them.

Bottom line is that there should be no reason for your "software" to be referencing professional service corporations.

[Blinky the 3-eyed Fish]

Thanks MGB, you have been very helpful in answering my last two questions. I will now consider you my new hero.