Job Creation and Worker Assistance Act (JCWAA) of 2002
Rev. 03/09/02

On Saturday, March 9, 2002, President Bush signed into law an economic stimulus package entitled the "Job Creation and Worker Assistance Act" (JCWAA) of 2002. This law also contains technical changes to EGTRRA and some other retirement provisions.

The EGTRRA corrections are effective as if they were originally in EGTRRA and include the following:

Simplified Employee Pension (SEP) Changes

• The SEP tax deductible contribution limit is increased from 15% to 25% of compensation.
  
• Elective deferrals made to a SEP are not subject to the deduction limits and are not taken into account when applying the limits to other SEP contributions.
  
• The definition of compensation for purposes of determining deduction limits to SEPs includes salary reduction amounts.
  
• The SEP eligibility for a contribution, minimum dollar limit has been increased from $300 to $450 (the current indexed limit).
  

Catch-Up Related Technical Correction Changes
Many of these changes confirm the IRS’s interpretation of EGTRRA found in the proposed regulations and include the following:

• Individuals who will have their 50th birthday by December 31 will be eligible to make a catch-up contribution as of the beginning of the calendar year.
  
• Elective deferrals in excess of 402(g) limit are excludable from an eligible participant’s income to the extent the amount does not exceed the catch-up contribution limit.
  
• For purposes of determining the limitation on the amount of a catch-up contribution that a plan may allow, all plan’s of the employer have one aggregate total catch-up amount as if applying controlled group rules to an Employer with a 401(a), 403(b), 408(k) or 408(p) plan.
  
• Governmental 457 plans can make catch-up contributions equal to the greater of the amount allowed under the new catch-up rules in 414(v) or under the existing catch-up rules under Code Section 457.
  
• The list of qualification requirements that will not apply to catch-up contributions has been revised to include:
  
• Code Section 401(a)(30), the exclusion for elective deferrals
  
• Code Section 408, provisions applicable to IRAs, SIMPLEs and SEPs
  
• Code Section 415( c), plan contributions to defined contribution plans
  
• Code Section 457(b)(2) without regard to the catch-up provision for "eligible" 457 plan s
  
• The list of nondiscrimination rules that a plan won’t be treated as failing to meet if allowing a catch-up contribution has been clarified to include:
  
• Code Section 401(a)(4), nondiscrimination rules
  
• Code Section 401(k)(3), ADP Tests
  
• Code Section 401(k)(11), SIMPLE 401(k) plan rules
  
• Code Section 403(b)(12), Nondiscrimination test for a 403(b) plan
  
• Code Section 408(k), The SEP Rules
  
• Code Section 416, top heavy rules
  
• Universal Availability of catch up contribution is not required for a plan that ceases to be part of a controlled group or member of an affiliated service group.
  

Rollover Related Technical Changes

• If a rollover of qualified plan funds contains pre-tax and after-tax dollars, the amounts rolled over are deemed to be in the order of pre-tax amounts first and after-tax amounts last. Thus, if a partial amount of what is distributed is rolled over, the amount rolled will be pretax first and if all pretax is rolled in then after tax dollars are considered rolled over.
  
• A direct rollover of after-tax amounts from a qualified plan can be made only to a defined contribution plan or to an IRA, but not to a defined benefit plan.
  
• Rollovers may be disregarded in determining the present value of a Qualified Joint and Survivor Annuity for purposes of the less than $5,000 involuntary cash out rule. This permits money purchase pension plans to take advantage of this provision to facilitate cash outs. We will modify the existing model EGTRRA amendments for the McKay Hochman plans accordingly.
  

Other Changes

• Deduction limit for combined plans (DC & DB) doesn’t apply if the defined contribution plan receives only elective deferrals.
  
• Distributions made after an individual's severance from employment will be taken into account for only one year in determining top heavy status.
  
• To take advantage of the small business tax credit for new retirement plan expenses under EGTRRA, the plan’s effective date must be after December 31, 2001.
  
• The EGTRRA mandated participant notice requirement of significant future reductions in benefits applies only to qualified defined benefit plans.
  
• Employee Stock Ownership Plan (ESOP) dividends can be reinvested in company stock without the company losing its dividend deduction. Reinvested dividends must be nonforfeitable.
  
• Electronic filing of Forms 1099 - The new law now allows information returns to be sent electronically, as long as the recipient agrees.