UPDATING YOUR RETIREMENT PLANS: "GUST" AND "EGTRRA"
FILING AND AMENDMENT DEADLINES THAT YOU NEED TO KNOW

By Roger T. Weitkamp, Esq.

I. Deadlines for "GUST" Determination Letter Filings:

A qualified retirement plan must be amended to comply with "GUST" (an acronym for the following legislation: the General Agreement on Tariffs and Trade, the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997, the IRS Restructuring and Reform Act of 1998, and the Community Renewal Tax Relief Act of 2000) in order to maintain its tax-qualified status. An application to the IRS for a favorable determination letter on a GUST-amended plan must be submitted by the applicable deadline (based on the type of plan and its plan year) for plan amendment.

For "pre-approved" plans, such as standardized or non-standardized prototype and volume submitter plans, the deadline for the GUST amendment (and IRS determination letter application for volume submitter and certain prototype plans) is the last day of the twelfth month beginning after the date on which a "GUST" opinion letter is issued by the IRS for the prototype or volume submitter plan. Upon receiving its opinion letter, your prototype or volume submitter plan sponsor should contact you regarding the amendment of your plan for GUST.

The deadline for amending individually designed, calendar year plans to comply with GUST was February 28, 2002. Non-calendar-year individually designed plans have until the end of their 2001 plan year to adopt the required GUST amendments.

Plan administrators who fail to file GUST amendments before the expiration of the applicable deadline will need to file their plans' GUST amendments through the IRS's voluntary compliance program, the Employee Plans Compliance Resolution System ("EPCRS"). EPCRS requires that plan administrators submit a detailed request (which has been prepared in accordance with IRS guidance) for a "compliance statement," together with a "compliance fee." The compliance statement and fee are in addition to the normal GUST amendment filing documentation and fee.

II. EGTRRA's Mandatory and Optional Retirement Plan Changes:

The Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA") contains numerous provisions that affect employee benefit plans, and it mandates several amendments to qualified retirement plans (most of which are effective for plan years beginning on or after January 1, 2002). These mandatory changes generally may be made in the form of a "good faith" model amendment (samples of which have been issued by the IRS), and must be adopted by the end of the plan's 2002 plan year for a plan sponsor to take advantage of a remedial amendment period lasting through the end of the 2005 plan year.

Certain of EGTRRA's retirement plan provisions are optional and offer plan sponsors an opportunity for plan design changes that can be beneficial to employers and participants. Optional plan amendments related to EGTRRA must be executed during the plan year in which they initially become effective.

Some of EGTRRA's more significant changes are:

• 401(k) Elective Deferral "Catch-Up" Contributions for Employees Age 50 and Older - Beginning in 2002, employees who are age 50 or older during the plan year may, assuming that the plan is amended accordingly, make a 401(k) plan contribution over and above the regular maximum 401(k) plan contribution amount (which is $11,000 for 2002). The maximum amount of the catch-up contribution is $1,000 for 2002, and will be increased by $1,000 for each subsequent year until 2006 (when the maximum additional contribution will be $5,000). After 2006, the maximum catch-up contribution will be indexed in $500 increments.
• Increased Deduction Limit - EGTRRA increased the income tax deduction available to employers for employer contributions to qualified profit sharing plans from 15% to 25%.
• Increased Compensation Limit - EGTRRA raised the amount of an employee's compensation that may be taken into account in determining employee contribution limits from $170,000 to $200,000.
• Increased Annual Additions Limit - EGTRRA raised the maximum annual amount of an employee's permitted contributions to all qualified defined contribution retirement plans to the lesser of 100% of an employee's compensation or $40,000 (formerly, an employee's maximum annual addition was the lesser of 25% of the employee's compensation or $35,000).
• Accelerated Vesting for Matching Contributions - EGTRRA decreased the maximum service requirement that employers may impose with respect to the vesting of employer matching contributions. The vesting schedule options now are "three-year cliff" or "six-year graded" vesting.
• $5,000 Cash-Out Threshold Calculation - Generally, if an employee's account balance is $5,000 or less, the employer may automatically distribute to the employee (i.e., "cash out") his account balance upon the employee's termination of employment. EGTRRA provides that an employer may ignore amounts attributable to rollovers from other qualified retirement plans in determining whether an employee's plan account exceeds the $5,000 cash-out threshold.
• Liberalized Rollover Rules - Previously, distributions from qualified retirement plans could be rolled over by an employee only to an IRA or to another employer's plan of the same type (e.g., 401(k) plan to 401(k) plan, but not 401(k) plan to 403(b) plan). EGTRRA liberalized these rules and permits rollovers among various types of plans and also permits after-tax contributions to be rolled over in certain circumstances.

  Roger T. Weitkamp is an associate with AGG and is a member of the Employee Benefits, Employment Law and Tax Practice Groups. For more information regarding assistance with amending your plan to comply with the mandatory changes set forth in GUST and/or EGTRRA, or with taking advantage of EGTRRA's optional plan-design alternatives, please contact Warren E. Kingsley, Chair of AGG's Employee Benefits Practice Group, at 404.873.8636 or by e-mail at Warren.Kingsley@agg.com, or Mr. Weitkamp at 404.873.8188 or by e-mail at Roger.Weitkamp@agg.com.

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