Human Resources & Equal Opportunity

California State University San Marcos

San Marcos, California 92096-0001 USA

Tel: 760 750-4416; Fax: 760 750-3141

www.csusm.edu/HR

MEMORANDUM

DATE: November 10, 2004

TO: All CSU Employees

FROM: Deborah Coronado

Associate Director, HREO

SUBJECT: 2005 Tax Year Update on the Economic Growth and Tax Reconciliation Relief Act (EGTRRA)

An update of the Economic Growth and Tax Reconciliation Relief Act (EGTRRA) related to voluntary retirement savings plans for the 2005 tax year is provided below.

Elective Deferral Limits

The Internal Revenue Code (IRC) establishes specific limits that govern amounts an individual can contribute to pre-tax salary reduction plans, such as 403(b), 401(k) and 457 plans. For the 2005 tax year, the IRC Section 402(g) “elective deferral limit” allows a participant to contribute up to $14,000 to a 403(b) or 401(k) plan AND $14,000 to a 457 plan, for a total contribution of up to $28,000.

Please review the 2005 Plan Comparison Chart for a summary of the 403(b), 401(k) and 457 plans and the specific amounts allowed by each plan.

Additional Catch-Up Contributions

In addition to the IRC 402(g) “elective deferral limit” under EGTRRA, there are additional “catch-up” provisions available.

1. The age based 50 and over “catch-up” allowance under IRC Section 414(v) is increased to $4,000. Individuals with a birth year of 1955 or earlier are eligible to participate, and can use this provision in a 403(b), or 401(k) and a 457 plan.

2. IRC Section 402(g)(7) provides a special “catch-up” election for 403(b) tax sheltered annuities (TSA), which permits certain long-term employees to increase their elective deferrals over the 402(g) limit. Under this catch-up election, employees with 15 or more years of service with the same employer may be eligible to contribute an additional $3,000 per year beyond the IRC Section 402(g) limit for up to 5 years, or a lifetime maximum of $15,000. Employees who wish to contribute using this catch-up provision must demonstrate eligibility by completing the CSU Catch-Up Calculation Worksheet. The participant must complete the Worksheet for each year he/she wants to contribute more than the annual 402(g) limit. For 2005, contributions using the 402(g)(7) catch-up provision cannot exceed $17,000 ($14,000 402(g) limit, plus $3,000).

3. The 457 plan, administered by the Department of Personnel Administration (DPA) Savings Plus Program, has a special provision that allows eligible participants who meet the minimum age requirement of 47 years to contribute up to twice the regular 402(g) limit. In 2005, the total 457 plan maximum amount increases to $28,000. Participants must contact the Savings Plus Program at (866) 566-4777 and receive approval before they can elect to take advantage of this catch-up provision.

Important: The December 2004 pay period warrant (January 1, 2005 issue date) will be the first pay warrant for the 2005 tax year. To enroll or make changes to your 403(b) contribution for the 2005 tax year (December 2004 pay period), you must submit a completed Salary Reduction Agreement to HREO by November 30, 2004. For more information on the CSU 403(b) plan, please visit http://www.csusm.edu/HR/benefits/03TSA.htm or contact the Benefits Office at extension 4425.

If you would like additional information about the State’s Deferred Compensation 401(k) or 457 plans, please contact the Savings Plus Program at (866) 566-4777. You may also obtain information via the Savings Plus Program’s web site at www.sppforu.com. New enrollments or changes received by the Savings Plus Program by November 30, 2004 will become effective January 1, 2005 (December 2004 pay period).