Small businesses (less than 100 employees) will be entitled to a tax credit of 50% of the first $1,000 of administrative costs in each of the first three years of a new plan.

IRS user fees for determination letter filing are waived for the first five years for small businesses (less than 100 employees).

The maximum deduction limit for a profit sharing plan is increased from 15% of pay to 25% of pay.

The 25% of pay limit on annual additions to an individual account is increased to 100%.

Elective salary deferrals, such as to a 401(k), will no longer reduce the pay figure used to calculate the 25% of pay deduction limit. More importantly, such deferrals will also no longer count as employer contributions at all for purposes of calculating the deduction limit. This may be the most powerful change. More on this in a later newsletter. (Call us if you don’t want to wait.)

Many benefit and contribution limits are increased, including the following:

	Compensation recognized for pensions from $170,000 to $200,000.
	Benefits from a defined benefit plan from $140,000 at social security normal retirement age (65, 66 or 67) to $160,000 at any age from 62 to 65.
	Total annual addition to an individual’s accounts in defined contribution plans from $35,000 to $40,000.
	401(k) elective deferrals from $10,500 to $11,000 in 2002, with additional increases phased in to reach $15,000 in 2006.

Participant loans will be available for sole proprietors, partners and S-Corporation shareholders.

Full deduction of contributions necessary to satisfy PBGC defined benefit plan termination liabilities in year of termination will be available. Also, in any year, defined benefit plans of all sizes will be able to deduct contributions necessary eliminate any unfunded current liability.

Matching contributions count toward top heavy minimums.

The multiple use test for 401(k) and matching contribution testing is repealed.

“Catch up” contributions for older workers. (This may turn out to be more UGLY than GOOD).

Faster vesting for matching contributions (100% at 3 years or 20% after 2 years increasing to 100% at 6 years…essentially the top heavy plan requirements, whether or not the plan is top heavy).

The requirement that plan participants be notified of a plan change that decreases future benefit accruals has been expanded, effective immediately, with specifics to be included in regulations. Excise taxes are imposed for failure to comply.

Involuntary distributions in excess of $1,000 must be rolled to an IRA designated by the employer unless another IRA, qualified plan or form of distribution (such as cash payment) is elected by the participant (not effective until regulations are issued).

The pension provisions all expire on December 31, 2010 along with the rest of EGTRRA. For some provisions, that is just unfortunate, but not overly complex. For others, it raises immediate questions about what can and cannot be done now. Most of these issues still need to be sorted out. The IRS has promised guidance (someday).