Because of EGTRRA's increased
annual defined benefit plan limit ($160,000),
and the elimination of the prior mandated
actuarial reduction for certain earlier
retirement ages (e.g., age 62), many employers
and business owners will be able to make
much higher contributions than before. For
example, in the case of a business owner
who previously had funded his or her plan
for an early retirement age of 62, the maximum
lump sum target at age 62 was approximately
$1,250,000 under prior law. Under EGTRRA,
the new maximum would be approximately $1,900,000.
This 50 percent increase translates into
a significantly higher annual contribution
to the plan.
If the employer froze or even terminated
the plan in the past because the prior maximum
benefits were fully funded, it can now reactivate
the plan, or start a new plan, to fund for
EGTRRA's much greater plan limits.
And, employers whose defined benefit plans
were previously limited by the prior combined
plan limitation (IRC 415(e)) for companies
that sponsored both defined contribution
plans and defined benefit plans should recall
that SBJPA (one of the GUST laws) eliminated
that combined plan restriction. Accordingly,
future funding of the defined benefit plan
(or a new defined benefit plan) can now
be much higher.
If you have any questions about how either
or both of these changes in law can enhance
your retirement planning opportunities and
tax deductible contributions, please contact
your NRS Account Manager.