In October of 1970, ERISA had not yet been passed and CAI is proud to have had the opportunity to serve the small business community for the past 30 years. Despite significant changes

Our website www.askcai.com is now on line. In addition to containing information about CAI, the website provides a wealth of information on all types of qualified retirement plans. Special features outline the basic types of programs which are available and may give you some new ideas about how your retirement program can be changed to best achieve your objectives. We will also be posting news updates on our website. Expected in the very near future, for instance, is the release of new IRS regulations on New Comparability (age weighted) defined contribution plans. Visit us on-line and keep up to date with the latest exciting developments in the retirement plan field.

The term "New Comparability" applies to defined contribution plans (i.e. profit sharing, money purchase) which provide different levels of contributions for different categories of employees. The allocation must be tested annually to make sure that it does not discriminate in favor of Highly Compensated Employees and the testing can be done on a "benefits", also known as a "cross-tested" basis. This approach allows for substantially higher contributions to go to groups which contain employees who are older than the average age of the rest of the company. Over the past few years, the government has become sensitive to criticism that the current non-discrimination rules allow for situations which in practice, are discriminatory. For example, an older owner can sometimes receive the maximum allocation of $30,000 while contributing only 3% of pay for his employees.

Eight months ago, the Treasury Department announced that they were "reviewing" the New Comparability rules to determine if they were "appropriate in all cases." At the time of this announcement, many practitioners feared that this "review" would ultimately lead to preventing small businesses from utilizing New Comparability. There was also a fear that the new rules would be retroactive. Several meetings were held over the past few months between the Treasury Department and representatives of the pension and small business community. The American Society of Pension Actuaries (ASPA) in particular took a lead role in explaining to the government that the elimination of New Comparability would likely result in the termination of many retirement programs with the ultimate result being the reduction in pension benefits for many employees.

The proposed regulations which were issued in October, reflected the concerns of ASPA. First, the regulations will be prospective only and will apply to plan years beginning on or after January 1, 2002. Second, although New Comparability has been limited, it has not been eliminated. Instead, a set of "Gateways" have been established and if any of those "Gateways" are met, the company can utilize New Comparability. The two main "Gateways" are as follows:

1. All eligible Non-Highly Compensated Employees must receive a minimum allocation of 5% of pay.
2. No group can receive an allocation which is more than 3 times higher than any other group. For example, under this Gateway, if the lowest group received an allocation of 3% of pay, the maximum allocation that anyone else can receive is 9% of pay.

Other "Gateways" apply if a cross-section of Non-Highly Compensated Employees receive the same higher allocation as the Highly Compensated Employees.

Many of our clients already meet at least one of these "Gateways" and among the ones which don’t, the addition of 401(k) and safe harbor 401(k) plans will certainly reduce the impact of the new rules. Over the next year, we will be reviewing all of our clients’ plans and will be providing you with the available options under these proposed, and eventually final, regulations.

After 2 decades of reductions to pension contributions, a new bill, known in the House of Representatives as CRISP would increase the amount which can be contributed by all individuals to their retirement program. Included in the bill are phased-in increases in the 401(k) contribution to $15,000, an increase from $30,000 to $40,000 in the defined contribution limit and an equivalent increase in the defined benefit limit. The compensation limit, currently capped at $170,000 would be increased to $200,000 and the 25% of pay combined plan maximum will be repealed. Finally, to encourage small businesses to establish new retirement plans, a tax credit would be given if certain conditions are met. Whether or not this bill will actually become law is tied into the current political maneuverings in Washington. If it is passed, it will provide a major boost to private pensions and, in particular, to small businesses looking to provide benefits for their employees. We will keep you informed on the progress of this bill in future Newsletters and, of course, on our new website.

As the year comes to an end, you are reminded to make sure that the minimum distribution requirements are met. A recent law change exempted distributions to currently employed non-owners who have attained age 70 ½ but if you are a 5% owner, or a parent, (or child) of a 5% owner, and you have attained age 70 ½ as of the end of 2000 then you are required to receive a minimum distribution from your retirement program. There are no exemptions on IRA distributions which require that minimums be taken by all individuals who have attained age 70 ½. The penalty for not taking these distributions is 50% of the amount which should have been taken. Please contact us if you have any questions about the minimum distribution requirements.