One of the most frequently discussed EGTRRA provisions is the "catch-up contribution" feature that 401(k) plans may include for age 50 and older participants, beginning in 2002. A 401(k) plan is not required to include a catch-up contribution feature; this feature is one of EGTRRA's many optional enhancements to the retirement plan rules.

The NRS GUST-approved prototype plans contain the catch-up feature, giving the client the choice of whether or not to adopt it.

Following are some of the highlights of the new catch-up contribution provisions:

• Amounts - The maximum catch-up contribution is $1,000 in 2002, and increases by $1,000 each year until it reaches $5,000 in 2006. After 2006, it will increase with cost-of-living, in $500 increments.
• Who is eligible to make catch-up contributions? Under the proposed regulations, an individual is eligible to make catch-up contributions if he or she:

  (i) is eligible to make elective deferrals during the plan year, and

  (ii) is age 50 or older. (An individual who is projected to attain age 50 by the end of the calendar year is deemed to be age 50 as of January 1st of that year.)

  The plan must satisfy certain logical rules so that all age 50 and over participants have an "effective opportunity" to make catch-up contributions (assuming they are allowed to make elective deferrals) and that the feature is "universally available" to those participants.

• Catch-up contributions are defined essentially as elective deferrals that exceed any otherwise applicable limit under the tax code or the plan (i.e., the IRC 415, 402(g) and ADP limits).
• Impact on ADP test - Catch-up contributions are generally disregarded in the ADP test.
• Impact on Top-heavy - If a plan is top-heavy, the catch-up contributions made during the plan year are disregarded for that year but catch-up contributions from prior years are included in determining if the plan is top-heavy.

Please do not hesitate to contact your NRS Account Manager to discuss this 401(k) plan optional enhancement.