MJ CONSULTING GROUP, INC.

EGTRRA RESTATEMENT

What is EGTRRA?

The Economic Growth and Tax Relief Reconciliation Act (EGTRRA), which was signed into law in June 2001, introduced sweeping changes to the retirement plan arena.

Some of the key provisions of EGTRRA are:

  • Increased benefit and contribution limits;

  • Increased elective deferral limits;

  • Increase compensation limit;

  • Created a "catch-up" provision for older workers, allowing individuals age 50 and older to make additional elective deferrals;

  • Created the Roth 401(k); and

  • Created additional incentives for small employers to offer retirement plans to their employees.

Background and History:

After new tax legislation is enacted, the law is analyzed by the IRS to determine how it will affect qualified plans in actual operation. This analysis usually takes years, and sponsors may be left to operate their plans on a "good faith" basis during this period. In other words, plans are required to be operated in the best possible way based on the prevailing understanding of the current law even though official regulations and/or guidance has yet to be issued. As a result, many plan sponsors have adopted "good faith" amendments to bring their plans into temporary compliance with EGTRRA pending this restatement period.

Types Of Plan Documents:

All qualified retirement plans are required to have a written plan document. These documents can take various forms including:

  • Individually Designed Plan Documents - This type of plan documents is custom designed to meet the plan sponsor's specific needs. An individually designed plan offers the greatest degree of flexibility possible.

  • Volume Submitter Plan - Volume submitter plans may look like individually designed documents, but they consist o language that has been pre-approved by the IRS. Volume submitter plans generally offer more flexibility than prototype plans but not as much as individually designed plans.

  • Prototype Documents - Prototype plans are also pre-approved by the IRS and come with two types of adoption agreement - standardized and non-standardized. A standardized prototype is more conservative and prevents the plan sponsor from designing a plan that will not satisfy any of the various coverage or discrimination tests, provided it is operated in accordance with its terms. Non-standardized plans offer additional flexibility, including the ability to exclude certain forms of compensation for allocation purposes or exclude certain employees from plan or contribution eligibility, within the boundaries of IRS standards. For the first time, the IRS is allowing prototype documents to include age-weighted, age-based and comparability allocation formulas. Previously, plan sponsors desiring to use these allocation formulas needed to utilize a volume submitter or individually designed plan documents.

Restatement Documents:

Once the plan has been reviewed, additional requested changes have been made (if any) and the restated documents are drafted, they should be read very carefully. The final signature-ready documents may consist of the following:

  • A restated Plan documents;

  • A resolution adopting the restated plan documents,

  • A restated trust document;

  • An adoption agreement (for prototype documents); and

  • Any required amendments

Deadlines:

Volume Submitter and Prototype Plans (collectively referred to as pre-approved plans by the IRS) need to be submitted once every six years. Pre-approved Defined Contribution Plans were recently approved and may be utilized for restatements up through April 30, 2010. Pre-approved Defined Benefit Plan will follow in about two years.

Plan Restatement Costs:

The cost of restating a plan will vary, depending primarily on the type of plan. Some variable that may influence plan restatement cost are:

  • Nature of plan design;

  • Nature of plan sponsor demographics;

  • Nature and number of contribution types;

  • Type of plan documents structure; and

  • Preparation of IRS determination letter submission, if applicable.

In order to control costs we have implemented an Electronic Virtual Office system that allows us to provide you with "restated" documents as well as copies of previous documents in a digital format. The MJGroup Virtual Office is a secure platform which can be accessed from any Internet connection. The system also has a provision that allows you to authorize other advisers to have access to you retirement plan documents to facilitate a seamless business relationship.