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Impact

EGTRRA Impact on Defined Contribution Government Plans for Plan Sponsor/Payroll Location:

EGTRRA has significantly impacted defined contribution government plans. Depending on the current Plan document, your decisions on key provisions will require a Plan amendment. There are 3 categories of elections that plan sponsors must make:

Mandatory - No choice but to comply

Recommended - Most plans that reference compliance with the IRC should elect and change to this provision.

Optional - Plan Sponsor has a choice.

In addition to making plan provision changes, workflows, procedures, forms, payroll systems and record-keeping systems require updating. In many situations, manual work-arounds will be necessary. Plan Sponsors need to understand how EGTRRA has impacted their plan administrator and find out how their plan administrator anticipates handling the new provisions. Below describes some potential impacts.

Issue New Plan Provision Plan Needs to be Changed Payroll Location / Employer Action Plan Administration

Annual Contribution Amount Recommended Probably Will need to update payroll system. Will need to update recordkeeping system. Change forms.

Increased Catch up Amount Recommended Probably Yes Will need to update payroll system. Will need to update recordkeeping system. Change forms.

New Age 50 Catch Up Provision Optional Depends if Plan adopts provision. Will need to update payroll system if adopted. Will need to update recordkeeping system and track if updated. Develop process and change forms.

457/401 (k) 403 (b) Limit Coordination Recommended Yes Remove any payroll system restrictions for employee's contribution to multiple plans. Change process and forms.

Tax Credit Non-applicable. N/A Communicate to participants the availability of credit.
Will affect participant's AGI for federal tax purposes.
Communicate to participants the availability of credit on statements or separate communication.

Rollovers From 457 Plans Mandatory Yes Provide communication material describing change Provide communication material describing change. Change process and forms.

Rollovers Into 457 Plans Optional Depends if Plan adopts provision. Provide communication material describing change if plan adopts provision. Provide communication material describing change. Change processes and forms if Plan adopts provision.

Spousal Rollover From 457 Plans Mandatory Yes Provide communication material describing change. Provide communication material describing change. Change process and forms.

Spousal Rollover into 457 Plans Optional Depends if Plan adopts provision. Provide communication material describing change if Plan adopts provision. Provide communication material describing change. Change processes and forms if Plan adopts provision.

Ability to Purchase defined Benefit service credits. Optional Depends if Plan adopts provision. Provide communication material describing change if Plan adopts provision. Coordinate transfer with DB plan. Provide communication material describing change. Change processes and forms if Plan adopts provision.

More flexible withdrawals and elimination of election window. Recommended Probably Yes Provide communication material describing change. Process and forms will change. Modify systems and operational procedures. Change forms. Provide communication material describing the change.

Change in Minimum Distribution Calculation to reflect more flexible life expectancy tables. Recommended Probably Yes Provide communication material describing change. Modify systems and operational procedures. Change forms. Communication material describing change.

In divorce, division of assets to spouse with tax impact Recommended Yes Provide communication material describing change. Modify systems and operational procedures. Change forms. Provide communication material describing change.

Tax reporting from W-2 to 1099 reporting Mandatory Yes Provide communication material describing change. Modify systems and operational procedures. Change forms. Provide participant communication.

As you can see by the above chart, much work is required to implement Pension Reform legislation. The Internal Revenue Service is expected to provide much more information on key questions over the next few months. Keep visiting our website for more information.

Interested in learning more on EGTRRA's impacts?

This information is not intended to be tax or legal advice. It is intended to provide general information regarding EGTRRA provisions.