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Reprinted from the “Orange County Lawyer,” March 2004 - page 2 / 6

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Act of 2001, or EGTRRA. A sampling of the key provisions of this law as they apply to 2004 are as follows:

DEFINED BENEFIT PLANS

25

$25,000

$65,000

30

$35,000

$80,000

35

$45,000

$100,000

40

$55,000

$130,000

45

$70,000

$165,000

50

$90,000

$215,000

55

$100,000

$230,000

60

$100,000

$265,000

65

$100,000

$325,000

Starting with plan years ending in 2004, the following schedule can serve as an approximation for maximum deductions (contributions may be higher or salaries lower in some cases).

Age

Minimum Compensation

Maximum Contribution

These contribution amounts are based on new plans. Existing plans will have lower contribution levels due to the current value of the assets already in the plan. For example, an existing Defined Benefit Plan, with a 55-year-old participant and $750,000 in the plan, would be able to support a contribution of up to $105,000 per year for 7 years. These contribution amounts do not use insurance products of any kind, nor do they include 401(k) contributions. If a spouse is included, the above contribution levels could possibly double.

PROFIT SHARING PLANS

Starting with plan years beginning January 1,2004, the new individual allocation limits will be the lesser of $41,000 or 100% of the participants compensation but with an overall deductible limit of 25% of the plan sponsors total eligible compensation.

Cross Tested Profit Sharing Plans are modified wherein the non-highly compensated employees (NHCE) must generally, but not always, receive an allocation of not less than the lesser of 5% of compensation or one third of the highest allocation percentage for the highly compensated employee (HCE) in the plan. If combined with a Defined Benefit Plan the minimum NHCE percentage allocation is generally, but not always, increased to 7 ½%.

With these new limits and percentages, Money Purchase Plans may no longer be practical. Profit Sharing Plans have the same limits as Money Purchase Pension Plans, but are more flexible in the amount of contributions from year to year. Therefore, if anyone still sponsors a Money Purchase Plan it is advisable to consider whether it should be terminated and replaced with a Profit Sharing Plan.

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