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                                                        EGTRRA  Restatement                      
                                                                                 Frequently Asked Questions

Recent legislation has mandated that all qualified retirement plans be fully amended and restated to comply with a series of tax and pension law changes dating back to 2001. This restatement process is known as the “EGTRRA Restatement”.

What is EGTRRA?

EGTRRA is an acronym for the “Economic Growth & Tax Relief Reconciliation Act” which was signed into law by President Bush on June 7, 2001.  EGTRRA included a large number of changes to qualified retirement plans.

What Changes to my qualified plan document does EGTRRA require?

The following list highlights some of the changes required for an IRS-approved EGTRRA Restatement
·Contribution & compensation limits increased.
·Loan programs can include sole proprietors, partners and S corporation shareholders.
·Identifying “key employees” no longer requires use of the 4 year look-back rule.
·To be considered an officer, an employee must now earn more than $160,000.
·Matching contributions can now be counted toward satisfying the top-heavy minimums.
·A safe harbor 401(k) plan is generally deemed to not be top-heavy.
·Elective 401(k) deferrals are no longer considered under §404 deduction limits.
·401(k) plans can permit Roth deferrals.
·Participants who are age 50 or older are allowed to make catch-up contributions.
·Vesting schedule maximums: 3 year cliff or 6 year graded.
·The hardship prohibition for making elective deferrals is now a 6 month period.

Why do we have to restate our qualified plan document?

When Congress enacts significant changes to the law, the IRS requires retirement plan sponsors to re-write their plan documents to reflect the regulatory & legislative changes.  This is commonly known as “restating” your
Plan.  The last change that took place was in 2001 to conform to the changes required by GUST.

Going forward, the IRS has developed a system to help control their workflow.  The IRS’s system requires
individually designed plans to restate their qualified plans every 5 years and prototype & volume submitter plans to restate their qualified plans every 6 years.

We paid for EGTRRA amendments, why do we have to restate our plan documents?

When  new regulations are issued or new legislation is enacted, the Treasury Department requires plan sponsors to quickly amend their plan document to reflect these changes as “good faith” compliance with the law. However, during the plan restatement cycle, the IRS requires plan sponsors to fully incorporate much more comprehensive revised & final language into the qualified plan document itself.
Once you have several “tack-on” amendments, your qualified plan document becomes more confusing to interpret. The IRS has stated that the more amendments you have, the more complex your qualified plan becomes, and the likelihood of mistakes increases dramatically. For these reason, the Treasury Department requires that all qualified plans be restated for EGTRRA.

What types of qualified plans must be restated due to EGTRRA?

All  qualified plan must be restated.  This includes prototype plans, volume submitter plans, and individually designed plans.

What happens if we do not restate our qualified plan for EGTRRA?

If you do not restate your plan it will no longer be a “qualified” plan. Since your plan would no longer be in compliance with the law, it would lose its tax-favored status, causing the following repercussions:

·You would lose the deductibility of employer contributions to the plan  for all past , current & future years.
·Your employees’ vested account balances would become immediately taxable; and
·The trust would lose its tax-exempt status and become a taxable trust……ALL assets would become taxable.

All of these events are unacceptable and can be avoided by restating your plan document as required by the Treasury Department.

Can I avoid the EGTRRA restatement by terminating my plan?

No, unfortunately the plan must be restated before the IRS will allow you to terminate your plan.

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