ERISA Plan Participants Information and Announcements

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) increases opportunities for individuals to save for retirement. Many of these opportunities begin in 2002 and phase in over a number of years. Below is a list of some of the major changes affecting retirement savings.

The maximum about 401(k) contribution limit will rise in $1,000 increments schedule (and will continue to rise, reaching $15,000 by 2006). In addition, the "15% of compensation limit", which previously required companies to limit the contributions of most 401(k) participants so that total contributions company-wide would not exceed 15% of the company’s payroll, has been repealed. As a result, instead of limiting employee contributions to any specific percent of pay, companies will be able to let their employees contribute any percent of pay, up to the $14,000 maximum.

Note about contribution limits for workers earning more than $90,000 and owners:
Special contribution limits may apply to employees who earn more than $90,000 a year or who are partial owners. Due to anti-discrimination rules intended to prevent highly compensated employees and owners from disproportionately benefiting from the 401(k) plan, this group of employees may not be permitted to contribute the full $14,000. Contribution limits for this group will vary by company depending upon circumstances such as the participation rate among employees earning less than $90,000.

*Schedule of 401(k) contribution limits:*		*Schedule of IRA contribution limits:*
2002:	$11,000	2002:	$3,000
2003:	$12,000	2003:	$3,000
2004:	$13,000	2004:	$3,000
2005:	$14,000	2005:	$4,000
2006:	$15,000	2006:	$4,000
		2007:	$4,000
		2008:	$5,000

Employees who turn age age 50 or older within the end of the plan year are permitted to make "catch-up" contributions that exceed the regular 401(k) contribution limits. You will be able to make a catch-up contribution in the amount of $4,000 for 2005. This amount will rise annually, in increments of $1,000 per year, up to $5,000 in 2006 (indexed in $500 increments thereafter).

Please note that your employer is not required to allow catch-up contributions.

The term “Annual Additions” refers to the total amount of contributions that can be made on your behalf during one plan year. This limit has increased to the lesser of 100% of compensation or $42,000 for 2005. This means that, if you are over 50 and make $14,000 or less, you could defer up to 100% of that compensation to the plan.

Please note that if you are related to a plan owner or if you made over $90,000 in 2004: You may be subject to the anti-discrimination rules discussed above and, as a result, may have 401(k) deferrals or match further limited due to these testing requirements.

A tax credit of up to $1,000 is available to some taxpayers depending on income. Workers eligible for this tax credit are single taxpayers with an adjusted gross income (AGI) of $25,000 or less, taxpayers filing as heads of household with an AGI of $37,500 or less, and taxpayers filing jointly with an AGI of $50,000 or less. The credit equals 10 – 50% for each $1.00 you contribute to your plan or IRA, up to the first $2,000. This tax credit only lasts through 2006 and applies to people age 18 who are not claimed as a dependent by another taxpayer. Note that this tax credit also applies to 401(k) plans, IRAs, 403(b) plans, and 457 plans, with the total tax credit not to exceed $1,000 across all plans.
IRS announcement 2001-106 on the Saver's Tax Credit (pdf doc)

You can now rollover balances between various types of qualified plans. Rollovers are permitted between 401(k), 403(b) and 457 plans. Note that it will be up to individual employers to decide which types of rollovers they will accept. You should consult your employer for specific details about what types of rollovers are permitted.

The employer matching contributions to your defined contribution plan(s) are required to vest as rapidly as: (1) 100%vested after three years; or (2) 20% vested after two years with an additional 20% vested each year until 100% vested at six years.

Participants who take a hardship withdrawal from their plan are now prohibited to make contributions for 6 months, (reduced from the previous 12 month suspension period).