IRS Issues EGTRRA Sample Amendments

September 5, 2001 ( - Good as its word, the Internal Revenue Service (IRS) has issued sample plan amendments for the pension provisions of EGTRRA, the Economic Growth and Tax Relief Reconciliation Act of 2001.

The IRS also issued guidance regarding the effective dates of certain provisions of EGTRRA.

The IRS sample plan amendments are in IRS Notice 2001-57 .  

Employers that adopt these amendments, or any other “good faith” EGTRRA amendments, will be entitled to a remedial amendment period that will not end prior to 2005.

Sample Amendments

Among the sample EGTRRA plan amendments are ones dealing with:

  • Plans that provide loans to participants but prohibit the making of loans to owner-employees of Subchapter S shareholder-employees (required)
  • Maximum annual addition (generally required, but may not be if the plan correctly incorporates the 415(c) limits by reference
  • The increase of the annual compensation limit to $200,000 (technically optional, but likely preferred)
  • Top heavy determination (required, except for safe harbor 401(k)s)
  • Accelerated vesting for matching contributions (required, if those contributions don?t already vest at least as rapidly as required under the new law)
  • Direct rollovers of plan distributions (required)
  • Rollovers from other plans (optional)
  • Involuntary cash-out provisions involving rollovers (optional)
  • Multiple use test (required)
  • Elective deferral limits (if the plan wants to take advantage of the new limits, unless the document already incorporates the 402(g) limits)
  • Catch-up contributions for employees age 50 or over (optional)
  • Hardship suspension period (optional)
  • Defined benefit limitations (optional for plans that don?t incorporate the 415(b) limits by reference).

Effective Dates

In IRS Notice 2001-56, guidance is provided on the effective dates of certain provisions of EGTRRA, specifically:

  • the increase in the 401(a)(17) compensation limit under EGTRRA Section 611(c)
  • changes to the top-heavy requirements of Section 416 under EGTRRA Section 613
  • change to the suspension period of 401(k) hardship distributions under EGTRRA 636(a).

Specific Impacts

Regarding the change in annual compensation limit to $200,000 effective for calendar years beginning after 2001, the notice clarifies that the limit applies to a plan based on the calendar year in which a particular plan year begins. Consequently, for a non-calendar year plan, the new $200,000 limit applies as of the first day of the plan year beginning in 2002.

However, the notice says that a plan that uses compensation for prior periods can apply the new limit retroactively for prior determination periods, or can apply the new limit to future determination periods (e.g., for periods beginning after 2001).

According to the notice, the new rules for determining top-heavy status and key employees apply for the first plan year beginning after 2001, even though the determination date is prior to 2002.

Suspension Timing

While the hardship contribution suspension requirement is reduced from 12 months to 6 months, this is generally effective for calendar years beginning after 2001. However, an employer may apply the 6 month suspension period to hardship distributions made after 2001 or to distributions that had been made prior to 2002, according to the notice.

Also, an employer can continue to use the old 12-month suspension period unless