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September 2001
B
ENEFITS
P
ROVISIONS IN
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EW
T
AX
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AW OF
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NTEREST TO
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PONSORS OF
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ULTIEMPLOYER
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LANS
The most significant benefits provisions in the Economic Growth and Tax Relief Reconciliation Act of
2001 (EGTRRA)
1
incorporate some long-standing proposals for retirement plan reform. In addition,
EGTRRA includes some provisions of interest to sponsors of multiemployer health and welfare plans.
This In Depth discusses EGTRRAs benefits provisions of interest to sponsors of multiemployer plans.
2
Effective Date and Expiration Date
EGTRRAs benefits provisions will generally be effective starting with the first year or plan year
beginning after December 31, 2001. Exceptions to this effective date are noted in the discussion that
follows.
For federal budget purposes, all of the provisions of this new tax law will sunset (i.e., expire) on
September 30, 2010. The retirement plan changes are expected to be renewed before they are
scheduled to sunset, but, as is always the case with legislation, renewal is not guaranteed.
Unfortunately, plan sponsors will need to take this uncertainty into account, both when they consider
the impact of EGTRRA on their plans and when they communicate benefit changes resulting from
EGTRRA to participants.
Provisions Affecting Retirement Plans
Section 415 Relief
EGTRRA repeals the 100 percent-of-pay limit for multiemployer defined benefit plans. As a result,
multiemployer pension plans will be able to pay participants their full pensions up to the applicable
dollar limits even if the amount is more than their high three-year average pay.
The 100 percent-of-pay limit still applies to pensions from single employer plans, including union staff
plans. However, because EGTRRA rolls back the aggregation rules for multiemployer and single
employer plans, benefits under a multiemployer plan will not be counted in testing to see if a union

1
The text of EGTRRA, which President Bush signed into law on June 7, 2001, is available on the Web at
http://frwebgate.access.gpo.gov/cgi-
bin/useftp.cgi?IPaddress=162.140.64.21&filename=publ016.pdf&directory=/diskb/wais/data/107_cong_public_laws
.
2
The Segal Company has also prepared a two-page Bulletin that summarizes EGTRRAs retirement provisions. That June
2001 Bulletin, New Tax Law Includes Section 415 Relief for Multiemployer Plans, is available in PDF format from the
following page of The Segal Companys Web site:
http://www.segalco.com/publications/bulletins/june01taftegtrra.pdf
.
To request the printed publication, send a fax to Kara Jackson, Public Affairs Department, at (212) 251-5490 or an E-mail
message to info@segalco.com. 2
employees pension from the staff plan meets the 100 percent-of-pay limit. Multiemployer benefits
earned by work for the union will, however, still be added to the staff plan benefits in testing for
compliance with the dollar limits at early or normal retirement age.
The following are two examples of the practical effect of �415 relief for multiemployer plans:
n

Adam has 30 years of service in the industry. He is entitled to an unreduced $55,000 annual
pension from his multiemployer plan, even though he is only 50 years old. Under current law, his
pension would be cut back to $44,470 (or less, if his annual pay were less than that) due to early
retirement reductions. Under EGTRRA, he will be able to receive the full $55,000 pension. The
early retirement reductions still apply, but they are less stringent and start at a higher level.
n

Zelda also has 30 years of service under the same plan and is also entitled to an unreduced $55,000
annual pension at age 50. Current law limits her multiemployer plan pension to her pay level,
which is relatively low compared to the majority of participants in the plan: $37,000. Under
EGTRRA, she can receive her full $55,000 pension.
Under EGTRRA, multiemployer plan benefits no longer need to be aggregated with single employer
benefits funded by the same employer, when applying the 100 percent-of-pay limit to single employer
defined benefit plans. For example, Zelda, who is mentioned above, is entitled to a $20,000 pension
from a union staff plan in addition to a pension from the multiemployer plan. Without benefits
aggregation, she will receive both pensions. Before EGTRRA, she would not have been able to receive
a pension from the single employer plan.
Although aggregation still applies for the early retirement dollar limits, more generous limits (see
below) allow higher benefits to be paid. For example, consider Lee, who is 55 years old, earns $97,000
per year and is entitled to a $50,000 pension under the union staff plan and a $42,000 pension from the
multiemployer plan. The aggregation rules under current law would limit the total pension to $83,000.
This is because his two pensions are added together and then the total is limited to $83,000, the early
retirement dollar limit at age 55 under a plan of a tax-exempt employer. If Lee retires in 2002 once
EGTRRA takes effect, the pension would be the full $92,000 from both plans, because of the increase
in the early retirement limit.
Significant Increases in Retirement Plan Limits
The following table notes the new limits and compares them with the current limits:
Current Limit
New Limit under EGTRRA
Section 415 defined benefit
dollar limit
$140,000/year
$160,000/year at age 62, with late-retirement
adjustments for benefits starting after age 65
(indexed in $5,000 increments)
Section 415 defined
contribution dollar limit
$35,000/year
$40,000/year
(indexed in $1,000 increments)
Section 415 defined
contribution pay-based limit
25 percent of pay
100 percent of pay
Section 401(a)(17) limit on
pay that can be counted for
pension purposes
$170,000
$200,000/year
(indexed in $5,000 increments)
Section 401(k) annual limit
on elective deferrals
$10,500/year
$11,000/year
(indexed in $1,000 increments to
$15,000/year by 2006,
then indexed in $500 increments) 3
The new �415 defined benefit dollar limit of $160,000 at age 62 translates, roughly, into a $128,000
pension at age 59, a $96,000 pension at age 55 and a $68,000 pension at age 50. For a comparison,
consider that under the current �415 defined benefit dollar limit of $140,000 at age 65, 66 or 67, a
pension at ages 59, 55 and 50 for most workers would be considerably lower: roughly, $83,100,
$62,200 and $44,470, respectively.
3
The higher �415 limits for pension plans can apply to people who are already retired, unless the trustees
choose not to let the increase go into effect. If they do not want their plans benefit obligations to
retirees to go up because of these limit increases, trustees should promptly review the plan documents
with their counsel and, if necessary, amend the language to make clear that the old limits will remain in
place. The Internal Revenue Service (IRS) is expected to publish model amendments that can be used
in the short term.
4
Based on the legislative history of this law and the IRSs rulings on earlier �415 increases, it appears
that, if trustees do decide to apply the higher �415 limits to current retirees, the plan administrator
should recalculate each retirees benefit, as of the date of retirement, using the new limits. Higher
benefits can be paid starting January 1, 2002, generally (not retroactively). Here are two examples:
n

Anne retired in 1999 at age 65. Her pension from the multiemployer plan was $57,000 per year;
however, she has only been receiving $48,000 per year because her three-year final average pay
was $48,000. With the repeal of the 100 percent-of-pay limit, she can receive an annual pension of
$57,000 starting January 1, 2002.
n

When Zachary took early retirement in 1998 at age 50, he was entitled under the terms of the plan
to a 30-year service pension of $55,000 per year, but he has been receiving $41,300 per year
because of the �415 early retirement limit. In 2002, he can start receiving his full $55,000 annual
benefit because the new early retirement benefit limit is no longer lower than his plan benefit.
It is important to note that although the 25 percent-of-pay �415 limit for additions to an individuals
account is raised to 100 percent of pay, the deduction limit for employer contributions is still 25 percent
of the total pay for all participants. This may not necessarily pose problems. For example, if the per-
person contribution is 40 percent of the pay of a lower paid employee but only 15 percent of the pay of
a higher paid employee, the total amount contributed may still be no more than 25 percent of the sum of
all the covered employees pay.
Another deduction limit that remains in effect restricts negotiated employer contributions to annuity
funds even further. Under �404(a)(7), when there is a defined benefit plan and a defined contribution
plan covering the same employees, the total that can be deducted for contributions to both plans is
limited to 25 percent of the covered employees pay.
5
So, if the employer contributions to the pension
fund were equal to, say, 6 percent of wages, the most they could contribute and deduct to the annuity
fund would be 19 percent. Again, these limits are applied to the total of all wages, not to individuals.

3
Actual reductions vary depending on calculations by each p