NEWSLETTERS

The IRS has issued proposed regulations for the new catch-up contribution provision enacted by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

The new law is effective for tax years beginning after December 31, 2001. It allows all workers who are at least age 50 before the end of the plan year the opportunity to contribute additional employee contributions to their retirement plans.

Eligible participants can contribute an additional $1,000 in 2002 once they contribute the maximum amount allowed under their Plan, increasing in $1,000 increments until reaching $5,000 in 2006 and thereafter are adjusted annually for cost of living adjustments. Catch-up contributions are not subject to nondiscrimination testing, nor are they subject to any other contribution limits.

Employers are permitted to match catch-up contributions which would be subject to discrimination testing.

Employers do not have to allow catch-up contributions, but if they do, all eligible participants must be given the opportunity to take advantage of the catch-up contributions provisions.

Plan sponsors should provide affected participants an enrollment form so that an election to have the catch-up contribution withheld is on record. Administrative Retirement Services, Inc. (ARS) has created a new enrollment form with a catch-up contribution election option. See insert for a copy.

Most investment companies have determined that a separate catch-up contribution money type is not necessary. Therefore, employers would submit the catch-up contribution as an employee deferral and report the contributions to us at year end.

For 2002, employers are required to report participants' elective deferrals and qualified catch-up contributions on Form W-2 in box 12 using Codes D through H and S.

Plan sponsors may rely on the proposed regulations until final guidance is released.

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