EGTRRA AMENDMENT DEADLINE IN LIGHT OF THE GUST EXTENSION
Rev. 11/21/02

Employers must generally complete a “good faith” EGTRRA amendment by the end of their GUST restatement period, or if later the end of the plan year in which the provisions are first applicable. This generally means that the just announced GUST deadline extension to September 30, 2003 has also extended the EGTRRA Amendment deadline to September 30, 2003 for prototype and volume submitter plans.

Notwithstanding the above, the IRS in Notice 2001-56 warned of potential cutbacks under Code Section 411(d)(6) that had to be addressed if the EGTRRA amendment was to be adopted in a retroactive fashion. Under Code Section 411(d)(6) it is illegal to reduce benefits that have already been accrued. For example, many benefits in defined contribution plans accrue as of the last day of the plan year. Thus, to avoid illegal cutbacks, any amendment would have to be effective prior to that date, for example December 30, 2002 for a calendar year plan.

There is a potential cutback scenario requiring the EGTRRA amendment to be completed in 2002. In Notice 2001-56, the IRS specifically addresses the issue of top-heavy accruals in defined contribution plans and the impact of the last day rules. If a plan was top heavy under the rules prior to the EGTRRA changes but will no longer be top heavy under the new rules, the EGTRRA amendment needs to be adopted no later than 12-30-02 for a calendar year plan. Any participant who is eligible for a top-heavy contribution and employed on the last day of the plan year i.e. 12-31-02 could be deemed to have an accrued benefit in the form of a top-heavy contribution if the amendment was not made. So it is important to adopt the EGTRRA amendment before 12-31-02 if the plan is otherwise top-heavy. If the EGTRRA amendment is not adopted by 12-30-02 and there is no top-heavy contribution for 2002, the plan could be seen as making an illegal cutback of the top heavy contribution for 2002 as required under the plan’s terms. Further, it is our opinion that in this case the EGTRRA amendment should be adopted by 12-30-02 for calendar year plans even if the GUST restatement is not completed until the extended GUST deadline.