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Take Advantage of New Laws to Make Your Pensions More Valuable
by Barbara Lewis MBA and Dan Otto MBA

 We are fast approaching the deadline for law firms to restate their pensions plans to comply with new laws and regulations (referred to as GUST).  The original restatement deadline of December 31, 2001 has been postponed until February 28, 2002.  The restatement process gives firms an opportunity to amend a current plan – or even add a new plan – which could be more advantageous for the firm’s partners.  While these amendments can be handled by the plan’s investment provider or record keeper, these service providers may not be set up to provide the consultation on design options which could make the plan more valuable to the partners and staff of the firm. 

 According to Bruce Ashton, a partner with Reish Luftman Reicher & Cohen, there are two reasons why pension plans need to be amended:

 First, because of changes in the pension law beginning in 1994, plan documents have to be updated to comply with new legal requirements. If this is not done by the end of February, the plan could be subject to disqualification.  (This only applies to individually designed plans; if a firm uses a prototype or "volume submitter" plan, the deadline is actually the end of next year.) 

 Second, because of the new tax law (EGTRRA), to take advantage of new limits on contributions and benefits for next year, plans should be amended at the same time the GUST changes are made. 

 “These law changes give plan sponsors an opportunity to step back and examine their retirement plan structures to see whether they want to change or enhance them,” says Ashton, who has been handling pension plan issues since 1986.  For example, if firms now have a combination of a profit sharing and money purchase pension plan, to take advantage of the 25 percent deduction limit, they can eliminate the money purchase pension plan after January 1, 2002, because the deduction limit for profit sharing plans has been increased to 25 percent.  Eliminating the money purchase plan has two benefits:  it gives the firm flexibility by eliminating the mandatory contributions required for such plans; and it saves the firm the cost of maintaining the second plan.”

 The new law also permits "catch-up" contributions in 401(k) plans, which means that workers age 50 or older can defer an additional $1,000 into the plan in 2002.  The catch-up increases by $1,000 a year through 2006.  The new law also permits rollovers of retirement savings from other sources into the plan. So if you have a large individual retirement account, even one to which you have made contributions, you can roll that into the retirement plan, consolidate your investments and get better asset protection on your retirement assets.  Or if you want to bring in a retired judge as a partner, the judge can roll the funds from his public plan (often something called a 403(b) arrangement) into the firm’s plan to consolidate his investments.  Both the catch-up and new rollover rules require plan amendments.

 There are many other opportunities to revise plans to make them more valuable as an employee benefit (which presumably helps recruiting and retention of employees) or as a benefit to the partners of the firm by letting them save more for retirement.

 If you haven’t restated your firm’s pension plan, do so by the February 28, 2002 deadline or you could find your firm’s plan has been disqualified for 2002. 

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