EGTRRA Amendment
Rev. 03/04/04, E-mail Alert 2004-5

The IRS recently released a Technical Assistance Memorandum (TAM) from Paul Shultz, Director, EP Ruling and Agreements, addressing a GUST restatement made after an EGTRRA Good-Faith Amendment had been executed. The EGTRRA amendment was made to the pre-GUST document to prevent a cutback issue from occurring. For example, this could have happened if the EGTRRA amendment was not executed before December 31, 2002 and the plan, if still operated under the pre-EGTRRA rules, would have accrued a top-heavy benefit on December 31, 2002, though one was not required under the new law. The only way to not accrue a benefit was to properly amend the plan before the last day of the 2002 plan year. Thus, many plans were amended for EGTRRA before they were restated for GUST.

In a number of instances, the prototype plan sponsor (document sponsor) incorporated the EGTRRA amendment into the pre-GUST prototype plans to insure that their adopting employers would not have cutback issues.

The TAM addresses the scenario in which an adopting employer restated the plan for GUST after the initial EGTRRA amendment and did not complete an updated EGTRRA amendment. Although a plan restatement generally automatically overrides all previous amendments made to the plan, the TAM indicates that it may not be clear that the GUST restatement was meant to supersede the EGTRRA amendment, especially since the GUST document was not allowed to contain EGTRRA provisions.

The TAM states that for a plan that was restated for GUST after the EGTRRA amendment, and for which the employer did not re-execute the EGTRRA amendment, the GUST document does not necessarily supersede the EGTRRA amendment.

In addition, in the absence of any facts that would lead to a different conclusion, the failure to re-execute the EGTRRA plan amendments does not result in those amendments being superseded. Continued operation of the plan in accordance to the EGTRRA amendment is evidence that the GUST restatement was not intended to supersede the previously adopted EGTRRA amendment.

The TAM ends with a statement that it applies for all purposes, including qualification, funding requirements and deductions.

In our annual maintenance letter to our clients, mailed in late 2002, we stated that for plans that incorporated the EGTRRA amendment before the plan was restated for GUST, the EGTRRA amendment should be completed again when completing the GUST restatement. We still believe that re-executing the EGTRRA amendment at any time the GUST plan is restated in the future is the best procedure to follow.

Also of note is the fact that the TAM did not address the restatement of a plan for any other purpose such as the Required Minimum Distribution Amendment. While it is most likely the IRS would use the TAM to come to the same conclusion, it would be safest to re-execute all the appropriate plan amendments when restating a GUST document.