GUST is an acronym for a series of laws passed since 1994 affecting qualified retirement plans. GUST stands for GATT (General Agreement on Tariffs and Trade–generally referred to as the Retirement Protection Act of 1994), USERRA (Uniformed Services Employment and Reemployment Rights Act of 1994), SBJPA (the Small Business Job Protection Act of 1996), TRA ’97 (Taxpayer Relief Act of 1997), and the IRS Restructuring and Reform Act of 1998.
GATT – GATT sets interest and mortality tables for purposes of determining lump sum distributions and the 415 limits for defined benefit plans. For defined contribution plans, GATT sets increments in cost of living increases in the $30,000 415 limit (i.e., the 415 limit rises in $5,000 increments).
USERRA – sets forth how contributions and service credit is handled when a participant is called up for military service. Loan payments may also be suspended during military service.
SBJPA – made many changes including:
- New definition of Highly Compensated Employee – HCEs are now either more than 5% owners in the current or prior plan year or employees in the prior plan year who earned more than $80,000 (as adjusted for COLA increases) and, if elected, were in the top 20%.
- Current or Prior Year testing – sponsors may make a choice as to using the current year’s ADP/ACP average when testing or base the test on the prior year NHCE averages.
- Corrective distributions of failed ADP/ACP tests are now made to the HCEs with the highest dollar amount of deferrals.
- Minimum distributions – participants other than 5% owners who remain employed past 70 1/2 may elect to postpone receiving distributions until they actually retire.
- 415 compensation for testing and compensation limitation purposes includes deferrals made to a 401(k), 403(b), 457 or cafeteria plan.
- 415(e) limits for DB and DC plans are repealed.
- Establishment of safe harbor 401(k) plans.
- Establishment of SIMPLE IRAs and 401(k) plans.
- Family aggregation rules repealed for purposes of determining HCEs and compensation limits.
- Special aggregation rules for plans of owner-employees repealed.
- Minimum participation rules of Section 401(a)(26) restricted to DB plans only.
- Definition of “leased employee” changed to mean only if services are performed under the primary direction or control of the service recipient.
- “Social Security Retirement Age” can be used for nondiscrimination testing
- Matching contributions made for the self-employed are no longer treated as elective deferrals.
- 15% deduction limit increased to the greater of 15% of plan compensation or amount required to be contributed to a SIMPLE 401(k).
- Governmental employees permitted to purchase additional service credits under Section 415(n).
- New ESOP rules for S Corporations including exemption from stock distribution requirements (conformity with prohibited transaction exemption and exemption from UBTI).
- 403(b) plan exclusion allowance to include 403(b), 401(k) or cafeteria plan salary reduction contributions in includible compensation.
- 401(k) plans that allow early participation may test using permissive aggregation. Full funding limit for DB plans increased from 150% to 170% by 2005 (with phase in).
- Limits on investments by 401(k) plans in employer securities (limit is 10% of elected deferrals).
- Repeal of five-year forward averaging for lump sum distributions.
- Tax exempts can have 401(k) plans.
- Indian tribes can have 401(k) and 403(b) plans.
- No new SARSEPs after December 31, 1996.
- 15% excess distribution tax repealed.
- Repeal of 50% income exclusion for certain ESOP loans.
- Waiver of the thirty day period required for election of an annuity (to seven days)
- 457 plans required to have a trust.
- Multi-employer plans can no longer have ten year cliff vesting.
- Repeal of the $5000 death benefit exclusion.
- New rules on how basis recovered for annuity payments.
TRA ’97 –
- Raises $3,500 involuntary cash out limit to $5,000.
- Allows a plan to debit the account of a fiduciary if there is a judgment of wrongdoing against the plan.
IRS Restructuring Act –
- A hardship distribution of elective deferrals is no longer an “eligible rollover” and is therefore not subject to mandatory 20% withholding.
No early withdrawal penalty for IRS levy on a qualified plan.