to Qualified Plans and IRAs










*Republished December 2004 to reflect Prudential Financial's acquisition of CIGNA's retirement business.


©2004, The Prudential Insurance Company of America, all rights reserved.

The "Taxpayer Relief Act of 1997" Brings More Changes to
Qualified Plans and IRAs

WHO'S AFFECTED The new law affects sponsors of qualified defined benefit and defined
contribution plans, including governmental plans and church plans, as well as sponsors of tax-
sheltered annuity plans and holders of individual retirement accounts and annuities.

BACKGROUND AND SUMMARY

On August 5, 1997, President Clinton signed into law the
Taxpayer Relief Act of 1997 (TRA'97). This new law includes both revenue-raising provisions and
pension simplification provisions, including clarification of several provisions that were just
enacted last year in the Small Business Job Protection Act of 1996 (SBJPA). Major changes
include an increase in the first level tax on prohibited transactions, increases to the current liability
full funding limit for defined benefit plans, an increase to the "small benefits" cashout threshold,
and the elimination of the requirement to file copies of employee booklets with the Department of
Labor. In addition, special provisions are aimed at plans sponsored by state and local governments,
church plans and employee stock ownership plans (ESOPs).

TRA'97 also makes major changes to the availability of deductible individual retirement
arrangements (IRAs) and creates two new types of nondeductible IRAs: the Roth IRA and the
Education IRA.

ACTION AND NEXT STEPS Most provisions in TRA'97 are effective for years beginning after
December 31, 1997. Qualified plans and tax-sheltered annuity plans do not have to be amended to
reflect these changes until the 1999 plan year. Plans sponsored by state and local governments do
not have to be amended until the 2001 plan year.



IN THIS ISSUE
"Pension" Simplification

Revenue Raising Provisions

Additional Changes

State and Local Government Plans

Church Plans

Employee Stock Ownership Plans (ESOPs)

Individual Retirement Arrangements (IRAs)

Effective Dates Summary of Qualified Plan Provisions

Effective Dates Summary of IRA Provisions





Important Information
Plan Administration and Operation
August 1997*







©2004, The Prudential Insurance Company of America, all rights reserved. Page 2


The "Taxpayer Relief Act of 1997" Brings More Changes to Qualified Plans
and IRAs

The qualified plan changes made by the Taxpayer Relief Act of 1997 (TRA'97) may generally be
classified as pension simplification items, revenue-raising provisions, and miscellaneous changes
affecting governmental plans, church plans, and employee stock ownership plans (ESOPs). In
addition, TRA'97 greatly increases the attractiveness of individual retirement arrangements (IRAs)
and creates two new types of nondeductible IRAs.
"Pension" Simplification


Partners May Receive True Matching Contributions
Matching contributions made to partners will no longer be treated as 401(k) elective
contributions, subject to the annual limit on deferrals, the actual deferral percentage (ADP)
test, and special rules on the vesting and distribution of 401(k) deferral contributions.
Instead, they are treated like matching contributions made to any other employee and are
subject to the actual contribution percentage (ACP) test.
This provision is generally effective for plan years beginning after December 31, 1997.
However, it applies to SIMPLE Plans for plan years beginning after December 31, 1996.

Rollover Contributions Will Not Disqualify a Plan
TRA'97 requires the IRS to provide clarification that a plan making a direct rollover
distribution does not have to have a determination letter in order for the receiving plan
administrator to reasonably conclude that the contribution is a valid rollover.

Elimination of Filing Requirements
Effective August 5, 1997, plan sponsors no longer have to file summary plan descriptions
(SPDs, also called employee booklets) and summaries of material modifications (SMMs)
automatically with the Department of Labor (DOL). While they must still be supplied to
plan participants and beneficiaries within specific time periods, plan sponsors now only
have to provide copies to the DOL upon request. A maximum civil penalty of $1,000 per
request may be imposed for failure to supply these documents upon request from the DOL.

Tax Sheltered Annuity Plan Limit Revised
TRA'97 makes two changes to the contribution limits that apply to tax-sheltered annuity
plans. Effective for years beginning after December 31, 1997, the includible compensation
on which a participant's maximum exclusion allowance is based will be a participant's
gross compensation. That is, it will be compensation including elective deferral
contributions made to 401(k) plans, tax-sheltered annuity plans and cafeteria plans.
TRA'97 also directs the IRS to issue regulations revising the exclusion allowance rules to
reflect the elimination of the standard combined plan benefit limit effective for limitation
years beginning after December 31, 1999.

Paperless Plan Administration
TRA'97 instructs both the DOL and the IRS to provide plan sponsors with guidance for
providing required notices and obtaining required consents using new technology. This
guidance is to be designed to:





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o
Interpret the notice, election, consent, disclosure and time requirements, and related
recordkeeping requirements, as applied to the use of new technologies while
continuing to protect the rights of participants and beneficiaries; and
o
Clarify the extent to which writing requirements under the Internal Revenue Code
may permit paperless transactions.
This deadline for providing this guidance is December 31, 1998.

Nondeductible Plan Contributions
Effective for tax years beginning after December 31, 1997, contributions made to defined
contribution plans that are not deductible because they exceed the combined plan deduction
limit are not subject to the 10% excise tax on nondeductible contributions to the extent they
do not exceed the amount of the employees' 401(k) elective deferral contributions plus the
employer's matching contributions.

Offset of Plan Benefits
TRA'97 creates an important new exception to ERISA's nonassignment and anti-alienation
rule. This new exception permits a qualified plan to reduce a participant's plan benefits in
the event:
o
The participant is convicted of committing a crime involving the plan;
o
A court enters a civil judgement (or consent order or decree) against the participant
with respect to a violation of the ERISA's fiduciary requirements; or
o
A settlement agreement is reached between the Secretary of Labor or the Pension
Benefit Guaranty Corporation and the participant in connection with a violation of
ERISA's fiduciary rules.
The order establishing the participant's liability must require the offset of the plan's benefit
to offset the liability and the participant's spouse must consent to the offset unless she is
also a party to the judgement, unless the settlement provides a 50% survivor annuity to the
spouse.
This new rule is effective for judgements, orders and decrees issued and settlement
agreements entered into on or after August 5, 1997.

Plan Amendment Adoption Deadline
In general, TRA'97 plan or contract amendments are not required until the first day of the
first plan year beginning after December 31, 1998. Amendments to state and local
government plans are not required until the first day of the first plan year beginning after
December 31, 2000.
If a plan amendment is made before the amendment due date and prior to that amendment,
the plan is operated in accordance with the terms of that amendment, the plan will not
violate the anticutback rules as the result of applying that amendment.
Revenue-Raising Provisions


"Small Benefits" Cashout Threshold Increased
The threshold for making plan distributions without needing participant or, if applicable,
spousal consent has been raised from $3,500 to $5,000, effective for plan years beginning





©2004, The Prudential Insurance Company of America, all rights reserved. Page 4

after August 5, 1997. Like the old threshold amount, the new amount is not indexed for
inflation.

"Success Taxes" Eliminated
TRA'97 has repealed the "success taxes." The success taxes are two excise taxes imposed
on taxpayers who the government feels are too successful in saving for retirement.
SBJPA suspended the application of the 15% excise tax on "excess distributions" (for
1997: annual distributions exceeding $160,000 or single sum distributions exceeding
$800,000) from qualified plans, tax sheltered annuity plans and IRAs for distributions
received in 1997, 1998 and 1999. TRA'97 has eliminated this tax altogether for
distributions received after December 31, 1996.
In addition, TRA'9