EGTRRA Deadline for New Plan?

[Scott]

Pardon me if this is a stupid question, but if a company were to adopt a new 401(k) plan in 2003 with a calendar plan year, what would the deadline be for adopting good faith EGTRRA amendments?

[MGB]

I think the initial plan document must contain all EGTRRA language. At least that would be the case for an individually designed plan, but, I am not an expert on what happens if you are using prototype, volume submitter, etc.

[g8r]

Notice 2001-42 provides:

• Good faith EGTRRA plan amendments must be adopted no later than the

later of (1) the end of the plan year in which the amendments are required to

be, or are optionally, put into effect or (2) the end of the GUST remedial

amendment period. In limited situations, earlier amendment may be required

to avoid a decrease or elimination of benefits prohibited by 411(d)(6).

It doesn't specifically address new plans. To be safe, I'd have it adopted by the end of the plan year. But, I would think the general remedial amendment period that applies to new plans would apply. Under that rule, you generally have until the due date of the employer's tax return for the 2003 year (wow - it's been a long time since we've had to deal with those rules).

[Mike Preston]

Yes, it has been a long time. I think to get the 401(b) period, one must plan on submitting. If you don't want the 401(b) period, you don't have to submit. At least that was the rule many years ago.

Remember that EGTRRA provisions are mostly not mandatory. If you want to adopt a plan that has a compensation limitation of $170k, you can do so by not having an EGTRRA amendment. Of course, you also get the lower 415 limit and other such things, but there is no requirement to have an EGTRRA amendment if you don't want one. At least until 12/31/2005, which is, I believe the end of the extended RAP with respect to EGTRRA (for now!).

[g8r]

I agree, you don't have to submit for a letter if you don't want to. But, I think an EGTRRA amendment is required. While most of the provisions are optional, the top-heavy changes aren't.

[Mike Preston]

The amendment itself is not required, even for top-heavy, until the "deadline". At that point, it will be retroactive and apply to all years after the EGTRRA effective date. In the interim, one needs to administer the plan in accordance with the new requirements. Given that the plan still would have the old top-heavy language, you would essentially have to do the test both ways and give the minimum benefit if either called for it.

In a DB plan, one would be precluded from using the new testing in the determination of funding, though, until the amendment was adopted. That isn't likely to be a big deal, but in an unusual circumstance it might make a measurable difference.

[g8r]

Agree. But you do agree that an EGTRRRA amendment is required. The issue is the figuring out what the deadline is for adopting that amendment. And, pursuant to Notice 2001-42, you can't wait until 2005. Based on my message below, I think you need to adopt it by the end of the year - to be absolutely safe. The added benefit of doing it by the end of the year is that if it's a dc plan, it resolves the issue you raised about the anti-cut back issue for the top-heavy provisions.

[Mike Preston]

In general, I agree and I appreciate the follow-up because I think I left the impression that an amendment is not required for many plans. That isn't the case at all. I was trying to identify the exception. I should also have stated the non-exception case.

Two issues: is an EGTRRA amendment _required_ before 12/31/2005? Not in all cases, but probably in most. See Notice 2001-42, which states, in relevant part: "A plan is required to have a “good faith” EGTRRA plan amendment in effect for a year **if**:" (emphasis added, of course). Now, most plans will have one of those "if's" that are listed come into play. But not all. But, I agree, to be safe, might as well adopt the EGTRRA amendment.

As far as timing for the EGTRRA amendment, again, I'm not in precise agreement. The deadline for adopting such an amendment might have already passed for an individually designed plan. If it is a plan that is eligible for the GUST extended RAP, then the deadline has not passed and is no earlier than 9/30/2003 (but may be later). However, adoption by the "end of this year" will not work for a lot of plans.

[g8r]

The initial question was about a new plan established in 2003. So, even the GUST RAP ends in Sept. for most plans, my point is that you may need to use the new plan rule in 1.401(b)- 1 (I think that's the correct cite). What's not clear to me is whether the 1.401(b)-1 period applies (you have until the due date of the 2003 return) or whether the Notice applies and you must adopt by the end of 2003.

I agree that regardless of when you adopt it, you need to be aware of the 411(d)(6) anti-cut back issues.

[Mike Preston]

Yes, it would probably be a good idea to limit the discussion to the circumstance defined by the OP. Sorry. So, yes, I agree that the deadline is no earlier than the end of the plan year.

[Scott]

Thanks g8r and Mike. I posted the question on Friday afternoon and didn't have a chance to check back during the holiday weekend. Glad to see a lot of discussion.

It doesn't appear that there's a clear-cut answer, but what I take from your responses is that the plan should adopt the good-faith EGTRRA amendments by the end of 2003 to be safe, correct?

[g8r]

Yes, you should adopt it no later than the end of the year.