Mastering The Art Of Pension Provisions

The Tax Act that was signed into law last June has a number of pension provisions which go into effect in 2002. They include:

• An increase in the limit an employee can contribute to a 401(k) and 403(b) plan to $11,000, with additional $1,000 increments until it reaches $15,000 in 2006.
• Provisions for catch up contributions for workers age 50 or over in 2002 to 401(k) and 403(b) plans above the normal contribution limits. The maximum additional contribution amounts will be phased in from 2002 to 2006 in $1,000 increments. For SIMPLE 401(k) plans and IRAs the catch up contribution limits are $500 in 2002; $1,000 in 2003; $1,500 in 2004; $2,000 in 2005, and $2,500 in 2006 and thereafter. (Low- and moderate-income employees with incomes up to $50,000 on a joint return will be eligible for a tax credit, that is subject to phaseout, to match their retirement contributions up to $2,000.)
• Faster vesting of benefits, either after 3 years, or on a 2 to 6 year graduated schedule.
• Elimination of payment options other than lump-sum distributions at the employer's option.
• Increases in the IRA contribution limits from $2,000 to $6,000 by 2008 and thereafter.
• Increases in tax deductible employer contribution limits to profit sharing plans, and in the maximum benefit that can be provided to a participant in a qualified defined benefit plan.

The IRS has indicated that it has model language qualified pension plans can adopt to be in compliance with the pension changes established by the legislation. The sample language for most of the changes will have to be adopted by the end of the 2002 plan year. Let us know if you need assistance.

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