Effect of EGTRRA on Public Retirement Systems (Posted on June 28, 2001 by )


Carol V. Calhoun, Counsel
Venable LLP
575 7th Street, NW
Washington, DC 20004
Phone: (202) 344-4715
Fax: (202) 344-8300
Mobile: (202) 441-5592
E-mail: Click here to send e-mail.
Carol V. Calhoun

  1. New Retirement Plan Limits

    1. 401(a) Plans

      1. All 401(a) Plans

        1. Compensation taken into account for non-grandfathered retirees increases from $170,000 to $200,000 per year.

      2. Defined benefit plans

        1. Dollar limit increases from $140,000 to $160,000 for non-grandfathered retirees.

        2. Actuarial adjustments for early and late retirement more generous for non-safety employees.

      3. Defined contribution plans

        1. Dollar limit on annual additions rises from $35,000 to $40,000 for 2002, then by $1,000 increments until 2006.

        2. Percentage limit on annual additions rises from 25% to 100%.

      4. Grandfathered 401(k) Plans

        1. Deferrals rise from $10,500 to $11,000, effective 1/1/2002.

        2. 401(k)/403(b) plan deferrals need no longer be coordinated with 457(b) deferrals.

    2. 403(b) Plans

      1. Exclusion allowance eliminated.

      2. Limits on elective contributions become identical to those for 401(k) plans (see above).

      3. Annual additions limit changes same as for 401(a) plans.

      4. Coordination between elective contribution limits for 401(k)/403(b) plans and those for 457(b) Plans eliminated.

      5. Catch-up limits modified.

    3. 457(b) Plans

      1. Limits on elective contributions become identical to those for 401(k) and 403(b) plans (see above).

      2. Coordination between elective contribution limits for 401(k)/403(b) plans and those for 457(b) Plans eliminated.

      3. Catch-up limits modified.

  2. Other Changes

    1. User fees eliminated for determination letter requests for new (less than 5 years old) 401(a) plans for small (less than 100 employees) employers.

    2. Requirement of one-time election on timing of distributions from 457(b) plans is eliminated.

    3. Rollovers of distributions will be permitted among 401(a) plans, 403(b) plans, 457(b) plans, and IRAs, if the receiving plan permits such rollovers.

    4. Money from a 403(b) or 457(b) plan can be used to purchase service credit in 401(a) defined benefit plan, even at a time when a distribution is not otherwise allowed, if both the transferring and receiving plan permit such transfers.

    5. Safe-harbor for hardship distributions (during which new contributions cannot be made) reduced from 1 year to 6 months.

    6. Domestic relations order rules for 457(b) plans coordinated with current rules for qualified plans.