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How To Put EGTRRA Into Play
 

How To Put EGTRRA Into Play

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    How To Put EGTRRA Into Play How To Put EGTRRA Into Play Presentation Transcript

    • How to Put EGTRRA Into Play An Educational Seminar Presented By November 28, 2001
    • A L L General Statements • All plans affected. • Optional Provisions vs. Mandatory Provisions P L A N S • Automatic Provisions vs. Provisions Requiring Amendment
    • A L L P L A N S Effective Dates (General) • Defined Contribution (DC) Plans  Most provisions are effective for the first plan year beginning on or after January 1, 2002. • Defined Benefit (DB) Plans  Most provisions are effective for the first limitation year ending on or after December 31, 2001.
    • A L L P L A N S Plan Amendments • IRS Sample Amendment  Sample language to amend plans for EGTRRA provisions.  Cannot be used “off the shelf.”  Must be reviewed to ensure consistency between existing document and amendment.
    • A L L Plan Amendments • Deadlines P  “Good Faith Amendment” by the end of the first plan year for which it is effective (December 31, 2002 for calendar year plans). L  If amendment will cut back a benefit, it must be adopted prior to the plan year in which it is effective. A  Full amendment and restatement by the end of the 2005 plan year. N S  Does not affect GUST restatements.
    • D Timing B P L A N S • Effective date of defined benefit changes:  Plan years beginning after 1/1/2001. • Change of plan valuation date:  Up to one year prior to the beginning of the plan year.  At the election of the employer.  Not available to underfunded plans.
    • D Top-Heavy B • No top-heavy minimum for frozen plans: P L A N S Old Law New Law Top-heavy benefits continue to accrue for non-key employees in frozen plans. No accrual of topheavy benefits in frozen plans for nonkey employees.
    • D B Full Funding Limit • Full funding limit changes: Old Law P L A N S Current liability full funding limits determined Maximum Deduction Rule; this could result in nondeductible contributions. New Law •New deductibility phase-in accelerated to 2003, and then repealed; •Small plans with 100 participants or less allowed to fund up to unfunded current liability if covered by PBGC insurance program; •Terminating plans allowed to fund enough to make plan sufficient to pay benefits.
    • D B P L A N S Excise Tax • 10% excise tax does not apply to DB plans: Old Law New Law 10% excise tax on nondeductible contributions. Repeal of excise tax assessed on DB plan contributions.
    • D B Excise Tax • Amendment Notices: P Old Law New Law L No excise tax assessed if proper notice not given. If proper notice not given, a severe excise tax will be assessed. A N S
    • D Assumptions B Participant #1 Participant #2 $250,000 $40,000 L Age 52 35 A NRD 62 62 N SSRA 66 67 S NRB Formula P Compensation Lesser of DB dollar limit or 100% of compensation
    • D B Dollar Limits Old Law Plan Annual Benefit at NRA Retirement benefits reduced for Plan Normal Retirement Age (NRA) less than 65 and Social Security Retirement Ages. NRA Social Security Retirement Age L A New Law N No reduction of retirement benefits from age 62 to 65 for Social Security Retirement Ages. S 66 67 62 112,000 105,000 98,000 63 121,333 112,000 105,000 64 130,667 121,333 112,000 65 P 65 140,000 130,667 121,333 Plan NRA Annual Benefit 62 160,000 63 160,000 64 160,000 65 160,000
    • D Annual Normal Retirement Benefit B Participant #1 Participant #2 $250,000 $40,000 Age 52 35 NRD 62 62 SSNRD 66 67 100% Compensation $250,000 $40,000 DB Dollar Limit 105,000 98,000 Actual 105,000 40,000 100% Compensation $250,000 $40,000 DB Dollar Limit 160,000 160,000 Actual 160,000 40,000 Compensation P L A Old Law: New Law: N S
    • D Annual Contributions B Participant #1 Participant #2 $250,000 $40,000 Age 52 35 NRD 62 62 SSNRD 66 67 $105,000 $40,000 $145,000 97,208 8,082 105,290 Retirement Benefit $160,000 $40,000 $200,000 Contribution 148,126 8,082 156,208 Compensation P L A N S Total Old Law: Retirement Benefit Contribution New Law:
    • D Assumptions C P L A N S Participant #1 Compensation Age Deferrals Match Profit Sharing Participant #2 $250,000 52 10% 50% 15% $ 40,000 35 10% 50% 15%
    • D Compensation C P L A Compensation Age Deferrals Match Profit Sharing 2001 2002 2006 Participant #1 $250,000 52 10% 50% 10% $170,000 $200,000 $220,000* N S *Projected limitation due to indexing. Participant #2 $ 40,000 35 10% 50% 10% $ 40,000 $ 40,000 $ 40,000 Total $290,000 $210,000 $240,000 $260,000
    • D Salary Deferrals (10%) C P L A N S Compensation Age Deferrals Match Profit Sharing Actual 2001 2002 2006 Participant #1 $250,000 52 10% 50% 10% $25,000 $10,500 $11,000 $15,000 Participant #2 $ 40,000 35 10% 50% 10% $ $ $ $ 4,000 4,000 4,000 4,000 Total $290,000 $29,000 $14,500 $15,000 $19,000
    • D Employer Match (50%) C P L A N S Compensation Age Deferrals Match Profit Sharing Actual 2001 2002 2006 Participant #1 $250,000 52 10% 50% 10% $12,500 $ 5,250 $ 5,500 $ 7,500 Participant #2 $ 40,000 35 10% 50% 10% $ $ $ $ 2,000 2,000 2,000 2,000 Total $290,000 $14,500 $ 7,250 $ 7,500 $ 9,500
    • D Profit Sharing (10%) C P L A N S Compensation Age Deferrals Match Profit Sharing Actual 2001 2002 2006 Participant #1 $250,000 52 10% 50% 10% $25,000 $17,000 $20,000 $22,000 Participant #2 $ 40,000 35 10% 50% 10% $ $ $ $ 4,000 4,000 4,000 4,000 Total $290,000 $29,000 $21,000 $24,000 $26,000
    • D Sub-Total of Contributions C P L A N S Compensation Age Deferrals Match Profit Sharing Actual 2001 2002 2006 Participant #1 $250,000 52 10% 50% 10% $62,500 $32,750 $36,500 $44,500 Participant #2 $ 40,000 35 10% 50% 10% $10,000 $10,000 $10,000 $10,000 Total $290,000 $72,500 $42,750 $46,500 $54,500
    • D C Annual Additions Limit Old Law: Lesser of $35,000 or 25% of compensation. New Law: Lesser of $40,000 or 100% of compensation. P L A N S 2001 Limit 2001 Actual 2001 Excess Participant #1 $35,000 $32,750 $0 Participant #2 $10,000 $10,000 $0 2002 Limit 2002 Actual 2002 Excess $40,000 $36,500 $0 $40,000 $10,000 $0 2006 Limit 2006 Actual 2006 Excess $44,000* $44,500 $500 $40,000 $10,000 $0 *Projected limitation due to indexing.
    • D C Maximum Deductible Contribution Old Law: 15% of compensation. New Law: 25% of compensation. P L A N S 2001 Limit 2001 Actual 2001 Excess 2002 Limit 2002 Actual 2002 Excess 2006 Limit 2006 Actual 2006 Excess Participant #1 Participant #2 $32,750 $0 $10,000 $0 $29,325 $42,750 $13,425 $10,000 $0 $60,000 $46,500 $0 $10,000 $0 $65,000 $54,000* $0 $36,500 $0 $44,000* $0 *Reduced by $500 due to exceeding Annual Additions Limit. Total
    • D Sub-Total Adjusted for Limitations C P L A N S Compensation Age Deferrals Match Profit Sharing Actual 2001 2002 2006 Participant #1 $250,000 52 10% 50% 10% $62,500 $21,882 $36,500 $44,000 Participant #2 $ 40,000 35 10% 50% 10% $10,000 $ 7,443 $10,000 $10,000 Total $290,000 $72,500 $29,325 $46,500 $54,000
    • D Catch-Up Contributions C P L A N S Compensation Age Deferrals Match Profit Sharing 2001 2002 2006 Participant #1 $250,000 52 10% 50% 10% $0 $ 1,000 $ 5,000 Participant #2 Total $ 40,000 35 10% 50% 10% $290,000 $0 $0 $0 $0 $0 $5,000
    • D Total Contributions C P L A N S Compensation Age Deferrals Match Profit Sharing 2001 2002 2006 Participant #1 Participant #2 $ 40,000 35 10% 50% 10% $290,000 $21,882 $37,500 $49,000 $ 7,443 $10,000 $10,000 $29,325 $47,500 $59,000 $250,000 52 10% 50% 10% Total
    • D C Distributions • Hardships: Old Law New Law P •Eligible for rollover; •Not eligible for rollover; L •12 month contribution suspension; •6 month contribution suspension; A •10% penalty for early withdrawal. •10% penalty for early withdrawal. N S
    • D C Distributions • Involuntary Cash-Outs: Old Law P L New Law •Entire vested account balance (accrued benefit) considered for $5,000 limit. •Rollover account excluded for $5,000 limit. Deferrals $3,000 Match $1,500 N Rollover $1,000 Total $5,500 S Not eligible for involuntary cash-out. A Deferrals $3,000 Match $1,500 Rollover Ignored Total $4,500 Eligible for involuntary cash-out.
    • D C P L A N S Distributions • Rollovers: Old Law New Law Only permitted within like plan types: Permitted between different plan types: •Qualified plan to qualified plan •Qualified plan •403(b) to 403(b) •403(b) •457 •IRA
    • M I S C E L L A N E O U S Tax Credits for Low Income Savers Old Law New Law No tax credit for low and moderate income savers. •50% tax credit for contributions up to $2,000 to IRA, 401(k), 403(b), SIMPLE, SEP or 457 plans; •Full credit available to joint filers with adjustable gross income (AGI) under $30,000 and phased out for AGI over $50,000; •Effective in 2002; •Expires in 2006.