Tax Bill Provision	Actions Items
	Plan Design	Payroll	Recordkeeper	Employee Opportunities
Limits on Retirement Plan Contributions
Increased elective deferral limits for 401(k) plans § $11,000 in 2002 § $12,000 in 2003 § $13,000 in 2004 § $14,000 in 2005 § $15,000 in 2006 and thereafter (indexed in $500 increments starting in 2007)	§ Plan document may need to be amended to allow for higher limits	§ Payroll dollar limits must be increased	§ Payroll edit processing must be modified to account for new limits	§ Annual increase amounts can be communicated now for the next several years § Special communication for HCEs and NHCEs
IRS Code Section 415 contribution limit changes § dollar limit increased to $40,000, indexed in $1,000 increments § percentage of pay limit increased to 100%	§ Plan sponsors could allow a higher percentage of pay limit for employee contributions § Could improve test results if employees earning less than $85K can contribute up to the full 402(g) amended deferral limit	§ Percentage of pay limits must be adjusted or eliminated based on design decisions. Payroll elections could be made as a flat dollar amount per paycheck. § Programming to switch between qualified and non-qualified plan contributions must be updated	§ Payroll edit processing must be modified to eliminate the 25% limit § Systems will need to be modified if the plan changes or eliminates employee maximum deferral percentages	§ Employees will need to be notified of changes § Excellent opportunity to improve participant savings patterns
401(k) plans may permit participants age 50 and older to make additional contributions limited to the following amounts: – $1,000 for 2002 – $2,000 for 2003 – $3,000 for 2004 – $4,000 for 2005 – $5,000 for 2006 and thereafter (indexed in $500 increments starting in 2007) § Total deferrals (including additional contributions) cannot exceed 100% of pay § Additional contributions are exempt from all contribution and deduction limits and nondiscrimination requirements if all eligible participants under all plans in the controlled group of corporations have the same opportunity to make the additional contributions. § Employees must make all otherwise permitted deferrals to the plan	§ Plan sponsors must review the feasibility of offering this provision § Plan sponsors must decide how to administer the age requirement (e.g., the employee must be age 50 as of the end of the plan year) § If offered, plan sponsors must decide whether to match such amounts (match still subject to ACP test)	§ Payroll systems must be programmed to calculate and report the additional amounts § Amounts must be tracked separately from other plan contributions as they are exempt from all deduction limits and nondiscrimination testing requirements	§ Separate accounts may need to be established to track the contributions, particularly if testing data is pulled from the recordkeeping system or the sponsor wants to track utilization of this feature	§ Excellent opportunity for older employees to shelter more income and save for retirement.
Compensation cap is increased to $200,000. Increases will occur more rapidly due to incremental increases of $5,000 rather than $10,000.	§ Plan must be amended to allow for higher limit § May affect who is covered under the non-qualified plan if plan eligibility is based on the pay cap	§ Payroll threshold must be updated § Programming changes to switch between qualified and nonqualified plan contributions must be updated § Payroll edits for maximum contribution calculations must be revised	§ Payroll edits for maximum pay thresholds must be revised
Nonrefundable tax credit is allowed for elective deferrals and voluntary employee contributions of a percentage of the first $2,000 in deferrals for joint incomes below $50,000.	§ None	§ No issues	§ No issues	§ Excellent opportunity to increase participation among lower paid participants

Tax Bill Provision	Actions Items
	Plan Design	Payroll	Recordkeeper	Employee Opportunities
Changes to Plan Distributions
Rollover changes: § no longer restricted by plan type § after-tax amounts may be rolled over into an IRA or a defined contribution plan § surviving spouse may rollover a distribution into his or her qualified plan, 403(b) plan or governmental 457(b) plan § rollover amounts can be disregarded when determining involuntary cashouts	§ Plan sponsors must decide whether to allow rollovers from other types of plans and rollover of after-tax contributions § Plan sponsors must decide whether these new rollovers should be available for withdrawals or loans	§ No issues	§ Additional sources will have to be set up, particularly if the current plan does not allow after-tax contributions § Identify participants with balances under $5,000 when the rollover account is excluded § Automated cashout procedures need to be updated § The effect on plan expenses should be reviewed, particularly if average account balances change substantially as a result of increased rollover activity	§ Notice of Special Tax Treatment [402(f) Notice] must be revised. In particular, it must describe how the restrictions and tax consequences differ between the transferring and receiving plans § IRS should issue a safe harbor notice as a guideline § Participants who were not previously affected by the automatic cashout rules need to understand how they may now be impacted.
Hardship withdrawals are not eligible rollover contributions regardless of the source from which the withdrawal is made	§ Plans that allow hardships must amend the definition of eligible rollovers to reflect the change in the law § Review plan to see what withdrawals are or are not hardship	§ No issues	§ Recordkeeping and trustee systems must be updated to track hardship requests as ineligible rollovers
Suspension period for 401(k) contributions following a hardship withdrawal would be limited to 6 months	§ Plans with safe-harbor provisions must be amended to reflect the shorter suspension period	§ Payroll system must be updated to reflect the reduced suspension period § Deferral limit for year of hardship would stay the same. Deferral limit for year following hardship would be decreased by deferrals made prior to hardship withdrawal	§ Suspension dates must be reduced for participants under current suspension	§ Employees under current suspension periods must be notified ahead of time if the recordkeeper automatically reinstates deductions following a suspension period
“Same desk” rule is eliminated, permitting 401(k) plans to distribute accounts upon a severance of employment	§ Plan sponsors may need to amend certain plan provisions related to plan merger or termination § May impact ability to retain same administration in case of spin-off or divestiture	§ No issues	§ No issues	§ Eases the communication burden to employees affected by a sale or divestiture

Tax Bill Provision	Actions Items
	Plan Design	Payroll	Recordkeeper	Employee Opportunities
Other Changes Designed to Improve Plan Effectiveness
Deduction limit for profit sharing and stock bonus plans is increased to 25% of compensation: § Compensation now “includes” elective deferrals § Elective deferrals no longer count against the deduction limit	§ Plan must amend existing language that is specific to the 15% limit § Limits on employer contributions can be re-evaluated if they were previously limited by the 15% deduction limit. § Along with the increase in the 415 limit, this may be an opportunity to consider other account-based plan features such as retiree medical sub-accounts.	§ May need to be reprogrammed to correctly total various amounts for tax reporting	§ No issues	§ No issues
Matching contributions must be vested in either 3 years or a 2 – 6 year graded vesting schedule.	§ Competitive and legislative pressure is in place to vest employer matching contributions more rapidly – even more rapidly than the new lower schedules § For plans affected, the sponsor must select a new vesting schedule and the plan must be amended § The sponsor must decide whether the new schedule will affect all accumulated matching contributions or just new matching contributions going forward § The plan sponsor must decide whether to more rapidly vest other types of employer contributions under the plan such as profit sharing contributions	§ No issues	§ Vesting tables must be updated for plans affected § If the vesting schedule is only effective prospectively, new sources must be established for match under different vesting schedules § New vesting, if any may only affect active employees on effective date of change	§ SPDs or SMMs must be issued if the vesting is changed
The 401(k)/(m) multiple use test is repealed	§ Plans must be amended to remove the multiple use language § May be able to increase contribution limits for high paid employees		§ Coupled with the increased 415 limit, tests have a much better chance of passing. Projected testing should be run in late 2001 and again mid-2002 for the 2002 plan year	§ May be able to allow higher paid employees to contribute more if projected testing yields more favorable results
Fringe benefit treatment for retirement planning services	§ Employer-provided retirement planning services are now considered non-taxable fringe benefits under Section 132 § Services must satisfy nondiscriminatory availability rules § May be an opportunity to enhance the employer provided benefits and offer at no-cost to employees	§ Non-taxable benefits	§ No issues	§ Communication opportunities depend upon decisions made in plan design
Employers may deduct ESOP dividends, whether or not distributed, if employees can elect to take the dividends in cash or leave them in the plan for reinvestment	§ Plan sponsors that make employer contributions to the plan in stock or that offer stock as an option in the 401(k) plan may want to consider converting the plan to an ESOP to take advantage of the dividend reinvestment feature § Diversification features of ESOP § Separate ADP and ACP nondiscrimination testing for non-ESOP and ESOP portions of the plan	§ No issues	§ Any potential changes should be discussed with the recordkeeper to ensure their systems are capable of administering ESOP features	§ Communication opportunities depend upon plan design decisions

		Topic			Provision			Effective Date
	Deemed IRAs under employer plans			§ Plans may permit employees to make employee contributions to separate accounts or annuities and to elect to treat the contributions as IRAs or Roth IRAs. § Contributions count against the regular IRA and Roth IRA limits.			Plan years beginning after 12/31/02.
	De minimis exception to anti-cutback protection			§ IRS is directed to issue regulations permitting amendments that reduce or eliminate “benefits or subsidies” that create significant burdens and complexities for the plan and participants, provided the amendments do not have more than a de minimis adverse effect on participants’ rights.			IRS to issue final regulations by 12/31/03, and regulations apply to plan years beginning after 12/31/03 or such earlier date as IRS may specify.
“Qualified Roth contribution program” in qualified plans			§ A plan may include a “qualified Roth contribution program” that permits employees to direct that elective deferrals will not be excludable from income (but will be treated as elective deferrals for all other purposes). § The plan is required to maintain separate accounting for “Roth contributions” and report such contributions separately. § Rollovers are permitted between designated Roth accounts and Roth IRAs. § Tax-free distributions are allowed from Roth accounts after age 59½, death, or disability, provided the Roth account is established for at least five years.			Calendar years beginning after 12/31/05.
		Default rollover of mandatory cashouts to IRAs			§ A mandatory cashout of more than $1,000 must be transferred directly to an IRA (unless the participant directs otherwise). § Plan must notify the participant in writing (separately or part of 402(f) notice) that the participant may transfer the distribution to another IRA. § Fiduciary relief is available for default rollovers and the DOL is directed to issue safe harbor regulations within three years.			Distributions made after final DOL regulations are issued.

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