IRS Opens EGTRRA Restatement
Rev. 03/03/05, E-mail Alert 2005-4

The IRS just released Revenue Procedure 2005-16 announcing that it is accepting applications for opinion and advisory letters for pre-approved defined contribution plans -- master and prototype (M&P) and volume submitter (VS) plans -- for EGTRRA and subsequent changes on the list below.

The submission period for document providers for M&P and VS plans ends on January 31, 2006. However, as a mass submitter prototype drafter we may have to submit much earlier than this, most likely by October. Plan to attend one of our prototype plan seminars to discuss the new document.

The IRS is introducing the new six-year remedial amendment cycle for pre-approved plans and the staggered five-year remedial amendment cycle for individually designed plans. Thus, pre-approved plans, such as the McKay Hochman prototypes, will only have to submit applications for opinion or advisory letters once every six years even though amendments to the plans may be required before that time. The IRS will announce the next restatement deadline for employers who use a pre-approved defined contribution plan once the current plan document approval process is finished. The next restatement period is expected to start approximately in 2008 and end 2009. Following is a list of changes from the IRS that are to be included in the EGTRRA document.

1. Code §72(p) Final Loan Regulations of 12-3-02.
   
2. Code §401(a)(4) Amendments to 1.401(a)(4)-8 relating to new comp plans 6-29-01.
   
3. Code §401(a)(9) Final RMD Regulations of 4-17-02 and 6-15-04.
   
4. Code §401(a)(17) Compensation limit change to $200,000 subject to COLA from EGTRRA.
   
5. 5. Code §401(a)(31) Direct Rollover rule changes:
   
   1. a. after-tax rollovers in certain situations.
      
   2. b. automatic rollover of certain mandatory distributions effective 3-28-05.
      
   3. c. 403(b) and 457(b) are added to the definition of eligible retirement plan.
      
   4. d. hardships are excluded from definition of eligible rollover definition.
      
6. Code §401(k)
   
   1. a. Severance from employment is a distributable event for elective deferrals.
      
   2. b. Safe harbor hardship distribution suspension from making further elective or employee contributions is limited to 6 months.
      
   3. c. EGTRRA increases in 402(g) and SIMPLE deferral limits.
      
   4. d. Guidance on deferrals on post-severance compensation to be issued soon.
      
   5. e. Multiple use test eliminated.
      
   6. f. Final 401(k) and (m) Regulations, issued at the end of 2004.
      
7. Code §402A Roth 401(k) plans, guidance to be issued.
   
8. Code §408(q) Deemed IRAs, Final Regulations 7-22-04.
   
9. Code §411(a) Faster vesting of matching contributions.
   
10. Code §411(a)(11) Rollover contributions may be disregarded from determining involuntary cash-out balance.
    
11. Code §414(v) Catch-up contributions.
    
12. Code §415(c) lesser of 100% of compensation or $40,000 with COLA adjustments.
    
13. Code §416, safe harbor exemption from top-heavy rules.
    
14. Code §4975 plan loans for Subchapter S shareholder-employees.
    
15. Miscellaneous
    
    1. a. Money purchase merger into a profit sharing plan (Rev Rul 2002-42).
       
    2. b. PEO defined contribution plan guidance (Rev Proc 2002-21 and 2003-86) .
       
    3. c. Charging administrative expenses to former or current employees (Rev. Rul. 2004-10).
       
    4. d. Deemed 125 compensation.
       
    5. e. Guidance on post-severance compensation soon.