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IRS Guidance on
EGTRRA Amendment Process

Internal Revenue Service (IRS) Notice 2001-42, released on June 28, 2001, gives preliminary guidance on how the IRS expects to address the process of amending qualified pension and profit sharing plans to reflect the changes made by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), Public Law 107-16. The pension provisions of EGTRRA generally take effect starting with the first day of the 2002 plan year, immediately after the end of the period for GUST amendments and IRS submissions.

The key points of Notice 2001-42 are:

• No Extension of GUST Amendment Deadline The Notice emphasizes that the GUST remedial amendment period for individually designed plans, which ends on the last day of the 2001 plan year, is not being extended. However, other steps are being taken to minimize the need for EGTRRA amendments and submissions the following year.
  
  
• Need for EGTRRA Amendments A plan must adopt what the Notice calls a "good faith" EGTRRA plan amendment by the end of a plan year in order to put it into effect for a year, which will be necessary if:
  
  
  • The plan must comply with a provision of EGTRRA for that year (e.g., faster vesting for employer matching contributions), or
    
    
• The plan sponsor wants to put an optional EGTRRA provision (e.g., catch-up 401(k) contributions) into effect for that year, and
  
  
• The existing plan language would have to be modified in order to allow the plan to operate in accordance with the EGTRRA change.
  
  
• Retroactive Modifications A plan that adopts a good faith EGTRRA amendment generally will be able to come back a later point and modify it retroactively, after the IRS issues substantive guidance on how the law works. In limited situations, retroactivity will not be allowed, if it would cause a benefit reduction that is prohibited by Section 411(d)(6) of the Internal Revenue Code.
  
  
• Good Faith EGTRRA Plan Amendments A good faith EGTRRA plan amendment is defined as one that reasonably tries to take into account all of the requirements of the EGTRRA provision in question and reflects a consistent approach to the lawÕs interpretation. IRS will publish sample EGTRRA amendments that plans can adopt or customize, which will be deemed to be good faith EGTRRA plan amendments.
  
  
• EGTRRA Remedial Amendment Period Plans that adopt timely good faith EGTRRA plan amendment if they need to do so will have until the end of the 2005 plan year to modify them retroactively. That is also the deadline for retroactively amending existing plan language to fit EGTRRA more precisely.
  
  
• No Rulings on EGTRRA Amendment Individually designed plans submitted for GUST determination letters may reflect the changes made by EGTRRA. However, until further notice, determination, opinion and advisory letters will not consider the EGTRRA changes.