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Employee Benefits Bulletin December 2001

END OF YEAR CHECKLIST

Ensure your plan's GUST compliance process is well underway (note the new GUST deadlines in the "New Guidance" section).

Community Renewal Tax Relief Act of 2000 Compliance. "CRA 2000" specifies that pre-tax contributions for "qualified transportation fringe benefits" (e.g., employer paid parking & transit passes) that are not includible in gross income are compensation for purposes of Code section 415. This is a "new" GUST amendment. The requirement was imposed after many plans had been submitted to the IRS for a GUST determination letter. If a plan adopts the CRA 2000 model amendments before Dec. 31, 2001, it can rely on an existing GUST determination letter without resubmitting the plan. (IRS Notice 2001-37).

Safe Harbor 401(k) Plans must send a notice 30 days prior to the end of the year informing employees eligible to participate in the plan of the intention to use the safe harbor plan format in the coming year. The notice should also provide certain information describing the safe harbor format.

Planning for New EGTRRA Changes Effective in 2002.
If your plan is taking advantage of the new catch-up contributions next year, begin or continue administrative preparation, including participant education and talking with your service providers, internal systems analysts, and plan advisors to ensure the plan is properly set up to receive the contributions.

Find out the other new plan opportunities and requirements created by EGTRRA. For instance, EGTRRA creates a new "saver's credit" for eligible taxpayers who contribute to a retirement plan. The credit (up to $2,000, based on a % of the participant's contribution to the retirement plan) is applied against the participant's federal income tax liability. IRS Announcement 2001-106 describes the tax credit in detail and contains a sample, informative notice that employers can give to employees. The credit is designed to act as an incentive for retirement saving. Employers may benefit from the boost in plan participation in the form of better nondiscrimination testing results, since only nonhighly compensated employees are eligible for the credit.

For a description of the other new requirements and opportunities EGTRRA provides for plans, please refer to our June 2001 EGTRRA memo.

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