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.