State Laws Do Not All Conform to New Tax Rules

Many state laws do not conform in whole or in part to the retirement and ESOP provisions of the new tax bill. This could cause significant problems for companies and employees that exceed the contribution limits under old law. Some plans could even be disqualified under state law, making contributions taxable. Efforts are now underway to reform state laws in time to avoid the problems. California, for instance, is considering legislation to conform (SB 657). But the costs of conformity will be substantial for already strapped states. In California, for instance, conformity will cost over $40 million per year. Companies should consult with their advisors carefully on this issue to plan strategy for 2002. While most, and very possibly all, states will confirm eventually, this may not all happen in a timely fashion.

Other states where these issues could be a concern include Alabama, Arizona, Arkansas, Georgia, Hawaii, Idaho, Indiana, Kentucky, Maine, Massachusetts, New Jersey, New Mexico, North Carolina, Pennsylvania, South Carolina, West Virginia, and Wisconsin.