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Thelen Reid Brown Raysman & Steiner LLP
The
Internal Revenue Service has provided guidance on the Economic
Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA)
in Notice 2001-56 and Notice 2001-57.
Notice
2001-57, issued August 31, 2001, provided 24 sample plan
amendments for making changes permitted or required by EGTRRA.
Notice 2001-42 earlier had announced a remedial amendment
period ending no earlier than the end of the 2005 plan year
in which any needed EGTRRA amendments could be adopted retroactively.
However, availability of the remedial amendment period is
conditioned on timely adoption of good faith EGTRRA plan
amendments. The sample amendments are examples of plan amendments
that satisfy the good faith requirement. IRS stated that
the sample amendments should not be viewed as interpretive
guidance.
Notice
2001-56 provided interpretive guidance on three effective
dates:
| 1. |
The
increase in the compensation limit of Internal Revenue
Code §401 (a) (17) to $200,000 applies to years
beginning after December 31, 2001. The IRS held that,
in the case of a plan that uses annual compensation
for periods before 2002 to determine accruals or allocations
for a plan year beginning after 2001 (such as a final
average defined benefit plan), the plan is permitted
to provide that the $200,000 compensation limit applies
to annual compensation for the prior periods in determining
accruals or allocations. |
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| 2. |
Revisions
to the top-heavy rules apply to years after 2001. The
IRS held that the new rules apply in 2002 even when
the determination date is December 31, 2001 (before
the effective date) |
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| 3. |
Existing
regulations contain a safe-harbor rule requiring suspension
of contributions for 12 months after a hardship distribution
from a 401 (k) plan. EGTRRA directs the IRS to shorten
the period to six months, applicable to years after
2001. The IRS held that the new six-month rule will
apply effective January 1, 2002, even if the hardship
distribution was in 2001. |
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©2001 Thelen Reid Brown Raysman & Steiner LLP
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