PPA Interest Rates for 2006 Plan Year Funding

The IRS has published interest rates for determination of current liability for single employer pension plans for plan years beginning during 2006, as modified by PPA §301. [Notice 2006-75]

Protected

Personal PPA

So have you broken your office printer yet to pile those 900+ pages of the Pension Protection Act up in the middle of your desk? Dog-eared the pages you’re most interested in? Started scribbling your notes in the margins?

Not I. Personally, I love all the features the last dozen years of the Internet phase of the electronic age have given us, from quick searches to hypertext links to notes and all. So you can have my paper supply if you want it. This is still very much at the early stages of my own private investigations and will change daily, sometimes much more frequently that that; but I’m working on building up my own version of PPA.

PPA Coming to the Senate Floor

So, looks as though the Pension Protection Act of 2006 will hit the Senate floor tonight, perhaps in an hour or so, with almost certainty of passage. After which it goes to the President, who has committed to signing it into law.

PPA: “At-Risk” Plans

For a plan sponsor that is financially weak, the funding target generally is the plan’s at-risk liability. – Administration’s Pension Reform Proposal, Strengthen Funding for Single-Employer Pension Plans 2/7/2005, pg. 14

The Pension Protection Act of 2006 (H.R. 4), as passed last Friday by the House and awaiting possible Senate action this week, includes special rules for a single-employer defined benefit pension plan that is characterized as being “at-risk.” The Administration failed to have at-risk status depend in part on financial weakness of the plan’s sponsor, as had been approved by the Senate in last year’s S. 1783, but much of the remaining at-risk rules in the Administrations funding reform proposal (e.g., see page 16 of the document cited at the head of this post) survived to the compromise version of the legislation. An at-risk pension plan faces accelerated funding requirements, persisting for as much as 6 years following emergence from at-risk status. In addition, restrictions are placed on nonqualified deferred compensation programs maintained by an employer that sponsors an at-risk pension plan.

Determination of At-Risk Status. A single-employer defined benefit pension plan that is subject to ERISA’s minimum funding standards is at-risk for a plan year if all three of the following conditions are present:

1. Ineligible for Small Plan Exception – The plan has more than 500 participants on one or more days of the preceding plan year. For this rule, all defined benefit plans (not including multiemployer plans) of the employer’s controlled group are considered a single plan, but only participants of the employer are counted.
2. 80% At-Risk Test – The plan’s funded status for the preceding plan year, determined on the basis of otherwise applicable actuarial assumptions, is less than 80% (phased in over 4 years as described in the next paragaph of this post); and
3. 70% At-Risk Test – The plan’s funded status for the preceding plan year, determined on the basis of at-risk actuarial assumptions, is less than 70% (not phased in).

[ERISA §303(i), added by PPA §102(a); IRC §430(i), added by PPA §112(a)] All three conditions must be present, or else the plan is not at-risk. For example, if the funded status of a plan with 1000 participants under usual assumptions was below 80%, but the funded status under at-risk assumptions is over 70% because few employees will retire in the near-term with signficant subsidized early retirement benefits, then the plan will not be at-risk. Thus, if the plan’s funded status does not fall below the 80% at-risk test’s threshold, then a second actuarial valuation using the at-risk assumptions for the 70% at-risk test is unnecessary.

Phase-In of 80% At-Risk Condition. The 80% condition is phased in during the first 4 years of PPA application: 65% for 2008 (compared with the funded status for 2007, estimated using methods to be provided by IRS regulations); 70% for 2009 (compared with the funded status for 2008); 75% for 2010 (compared with the funded status for 2009); and 80% thereafter (et cetera). Since the 70% condition based on at-risk assumptions is not phased in, and since the effect of the at-risk assumptions would increase the value of the plan’s liabilities, one practical effect of the phase-in of the 80% condition will be to make the at-risk determination dependent solely on the 80% at-risk test for 2008 and 2009.

The Credit Balance Connection. To determine if a plan is at-risk, the plan’s funded status is determined using the value of plan assets after reduction for the plan’s credit balance (or, in PPA’s framework, the plan’s “carryover balance” and “prefunding balance”). The at-risk determination includes no exception for a plan that has a funded status in excess of 100% without reduction of plan assets by the credit balance. So a plan could have had assets in excess of all plan liabilities for the prior plan year, thereby at that time posing absolutely no risk to the PBGC nor to any plan participant; yet if reduction of the plan assets by the plan’s credit balance would have caused the plan’s funded status to fall beneath both of the funded status at-risk thresholds, then the plan would be considered at-risk.

The practical solution out of this crazy predicament is for the plan sponsor to make an election under new IRC §430(f)(5) to reduce the credit balance, thereby gaining recognition of the existing assets sufficiently to avoid at-risk characterization. Since such an election must be made at the beginning of a plan year, the employer with pension plan credit balances on hand would need to check the situation out in advance of the beginning of the plan year prior to the year threatened with at-risk characterization. For example, for a plan with a calendar plan year, the first decision point comes at the 1/1/2007 valuation, which will determine at-risk status for the 2008 plan year. As noted above, only the first of the two funded status conditions will be of practical effect, and the phased-in threshold under that rule will be 70%. Say that the plan’s present value of benefits under PPA’s usual assumptions (estimated under IRS rules hopefully – but unlikely – published by 12/31/2006, since we won’t actually have PPA assumptions such as the 3-segment yield curve by then) as of 1/1/2007 would be $100 million and the value of plan assets is $90 million; but say the plan has a credit balance on 1/1/2007 equal to $25 million. Reducing the plan assets by the credit balance produces a funded status of 65%, threatening failure of the at-risk test, which would characterize the plan as at-risk for the 2008 plan year. If the employer instead elects to reduce the credit balance by $5 million, then the 1/1/2007 funded status would be 70%, satisfying the at-risk threshold, thereby avoiding at-risk characterization for the 2008 plan year. Such election would need to be made before actually completing the relevant actuarial valuation. In the case of the first decision point for the 2007 valuation, one practical problem might be that elections to reduce credit balances are to be made as prescribed by IRS regulations, which may not yet have been published by the time that first decision needs to be made. And of course, when the credit balance has been reduced via IRC §430(f)(5), the forfeited credit balance can no longer be applied against minimum required contributions.

At-Risk Actuarial Assumptions. In addition to otherwise applicable PPA actuarial assumptions (e.g., the 3-segment yield curve), an at-risk actuarial valuation must include the assumption that all plan participants who are not already assumed to retire within the current plan year, but who are eligible to retire during the plan year being valued and the succeeding 10 plan years, will retire at the earliest retirement age under the plan terms, but not before the end of the plan year of the determination. For example, consider a plan that is at-risk for 2008 (as noted above, the second of the two funded status at-risk conditions, which would itself rely on an at-risk valuation, will not need to be completed in 2007 for the initial test; but if the plan does fail the 2007 test under the first of the two funded status conditions, then it will be at-risk for 2008, thus will need a 2008 at-risk determination for purposes of additional required contributions). In our example, have the plan’s terms permit early retirement at age 55 and that the plan’s actuary usually assumes a retirement age of 62 for the usual actuarial valuation. Any employee age 62 or over in 2008 would already be assumed to retire in 2008 under the actuary’s retirement age assumption; and any employee age 61 in 2008 would be assumed to retire in 2009 under either the actuary’s own assumption or the at-risk assumption. The at-risk valuation would accelerate the retirement age assumption for any employee age 52-60 in 2008: all employees age 54 through 60 would be assumed to retire in 2009; and all employees age 52 and 53 would be assumed to retire during the year they would reach age 55, the earliest retirement age under the plan.

At each employee’s assumed retirement, the employee is then assumed to elect the retirement benefit available under the plan that would result in the highest present value of benefits.

At-Risk Actuarial Values. Funding Target – The at-risk actuarial assumptions are used to value the present value of acccrued benefits under the plan for purposes of – (1) The 70% at-risk condition, which in practice will only be relevant for at-risk determinations for the 2010 at-risk determination and later; and (2) For determination of the funded target used for the minimum required contribution for an at-risk plan. All other PPA rules that depend on a plan’s funded status, such as restrictions on benefits and the criteria for ERISA 4010 filing, do not depend on the at-risk funding target.

If the plan is at-risk and was also at-risk for at least 2 of the preceding 4 plan years, then for purposes of the minimum required contribution, an additional loading factor is added to the funding target, equal to 4% of the funded target measured without using at-risk actuarial assumptions, plus an additional $700 per participant. For the minimum required contribution, the difference between the full at-risk funding target and the usual funding target is then phased in over a period of 5 consecutive years of at-risk status, including the current plan year, but excluding any year before 2008. For example, if the plan was not at-risk the preceding plan year, then 20% of the difference between the full at-risk funding target and the usual funding target is recognized; if the plan was at-risk the preceding plan year but not the plan year before that, then 40% of the difference is recognized; et cetera. If the plan had been at-risk, but then has at least one plan year during which it was not at-risk, then this 5-year phase-in starts again from 20% if the plan subsequently reenters at-risk status in a subsequent plan year. The at-risk funding target, with the additional load if applicable, then phased in as applicable, is then used to determine the shortfall amortization charge for the at-risk plan year, to be amortized over the next 7 plan years beginning with that plan year. The resulting higher amortization charge continues to be a factor in the required contribution for that full 7-year period, even if the plan subsequently emerges from at-risk status during the period.

Normal Cost – For purposes of the minimum contribution for a plan year in which the plan is at-risk, the normal cost is determined using the at-risk actuarial assumptions. In addition, if the at-risk for at least 2 of the preceding 4 plan years, then a loading factor is added to the normal cost, equal to 4% of the normal cost measured without using the at-risk assumptions. Similar to the at-risk funding target, the difference between the full at-risk normal cost and the usual normal cost is phased in over a period of 5 consecutive years of at-risk status.

ERISA 4010 Reporting. If a plan is required to submit an ERISA 4010 filing to the PBGC, then information in the filing must include the plan’s funded target determined as if the plan had been at-risk for at least 5 years, that is – (1) Including the 4% and $700-per-participant loads; and (2) Fully phased in, as if the plan had been at-risk for at least 5 consecutive years (without excluding pre-2008 plan years or any plan years prior to plan establishment in that count). [PPA §505]

Restrictions on Funding of Nonqualified Deferred Compensation. If any single-employer defined benefit plan is in at-risk status for a plan year, then assets reserved or transferred for payment of nonqualified deferred deferred compensation for certain covered executives during that plan year are subject to harsh tax penalties. [PPA §116] Note that the lag between the application of the at-risk conditions and actual entry of a plan into at-risk status leaves a door open. For example, if a plan is not at-risk during 2011, but the 1/1/2011 actuarial valuation indicates that the plan will be at-risk for the 2012 plan year, then an asset transfer to a nonqualified deferred compensation program during 2011 would not be subject to the new PPA restrictions.

Effective Dates. The at-risk rules for single-employer pension plan funding and ERISA 4010 funding generally take effect for plan years beginning on or after January 1, 2008. As noted, however, to determine whether a plan is at-risk for the 2008 plan year, an estimate of funded status under PPA assumptions (not including the special at-risk assumptions) must be made at the beginning of the 2007 plan year. Since the special loading factors would require at-risk status in at least 2 preceding years, the earliest those loading factors would apply would be 2010.

Special delays in the funding requirement effective dates also delay the effective date of the at-risk rules. For example, an eligible government contractor plan would not be subject to the at-risk rules until 2011 (or the effective date of CAS pension harmonization rules, if earlier).

The restrictions on funding of nonqualified deferred compensation take effect immediately upon PPA enactment. However, that effective date is only relevant for separate rules that apply those restrictions upon employer bankruptcy or certain plan terminations. At-risk status of a plan becomes relevant to the nonqualified deferred compensation restrictions only after the at-risk rules themseves take effect, beginning in 2008.

PPA: Lump Sum Distributions

Various provisions under the Pension Protection Act of 2006 (H.R. 4) affect the valuation and distribution of lump sum distribution of the value of a participant’s accrued benefits under a defined benefit pension plan. For now just focusing on distributions from single-employer qualified pension plans —

Hybrid Pension Plans. The accrued benefit under a cash balance plan may be expressed as the balance of the hypothetical account. Similarly, the accrued benefit under a hybrid plan, such as a pension equity plan, may be expressed as the current value of the accumulated percentage of the employee’s final average compensation. [ERISA §204(f), added by PPA §701(a)(2)] Thus, a cash balance plan or other hybrid pension plan may distribute the value of the hypothetical account or accumulated percentage in a lump sum distribution as full payment of the value of accrued benefits. This new rule is similar to reliance on safe harbor interest rates under Notice 96-8, avoiding the projection-discounting calculation that produced windfall “whipsaw” amounts for young employees in certain interest rate environments under pre-PPA rules. Note that PPA includes additional rules for cash balance plans, such as a requirement to permit employees to age into previously promised early retirement subsidies, that could indirectly affect lump sum distribution amounts. The PPA provisions relating to distributions from hybrid pension plans apply to distributions made after the date of PPA enactment.

Valuation of Lump Sum Distributions in Traditional Pension Plans. For a pension plan other than a hybrid pension plan, the amount of a lump sum distribution will be valued using the 3-segment yield curve introduced by PPA for pension funding. [PPA §302] For the lump sum valuation, the yield curve is based on the rates for the month before the distribution, rather than on the 24-month average used for the plan’s funding. Lump sum amounts should generally be lower under the new rates than under the pre-PPA determination, which is based on 30-year Treasury bond rates, with the largest cuts going to youngest employees. The new rates take effect during a 5-year transition period beginning in 2008.

415 Limit on Lump Sum Distributions. Determination of the IRC §415 limit on the amount payable as a lump sum distribution must use the greater of 5.5%, an interest rate specified in plan terms, or a rate based on the valuation of lump sum distributions as described in my preceding paragraph. [PPA §303] The third of these rates is actually somewhat complicated; see my earlier posting on this topic regarding the House version’s reference to the rate that would produce 105% of the minimum lump sum amount. As also discussed in that posting, the PPA rule on 415 limits for lump sum distributions applies retroactively to the beginning of 2006, potentially exposing a plan to violations for any higher lump sum amounts paid during 2006 before PPA enactment under the pre-PPA interest rate of 5%.

Distribution Restrictions for Underfunded Plans. Annual distributions to a participant may not exceed the periodic payment that would be payable under a single life annuity (plus any Social Security supplements) under a plan with a funded ratio less than 60%. [IRC §436(d), added by PPA §113] In particular, a plan participant would not be permitted to receive a lump sum distribution of the full value of accrued benefits. If the funded ratio is at least 60% but less than 80%, the permissible distribution can be the lesser of 50% of the unrestricted distribution or the present value of the benefit guaranteed by the PBGC, but only one such distribution may be made in any two consecutive years during which the distribution restrictions apply. If the plan is maintained by an employer in bankruptcy, the funded ratio threshold is increased to 100%, with no special rule permitting payment above the floor level. Also note that the new distribution restrictions do not eliminate nor preempt similar distribution restrictions applicable to the highest 25 paid employees if the plan’s funded ratio is less than 110%, as prescribed under Treasury Reg. §1.401(a)(4)-5(b).

For purposes of the distribution restriction triggers, the funded ratio is adjusted by adding the amount of annuity purchases for nonhighly compensated employees during the preceding 2 plan years to both the numerator and denominator of the funded ratio. If the funded ratio exceeds 100% (phased in from 92% beginning in 2008) without reducing plan assets by the plan’s credit balances, then the distribution restrictions do not apply. Conversely, if the plan’s funded ratio without reducing assets by credit balance is less than 100%, but would exceed the distribution restriction funded ratio threshold without the credit balance reduction, then the employer is forced to reduce the credit balance to the extent necessary to avoid the distribution restriction.

The distribution restrictions do not apply to any plan under which all accruals have been frozen since 9/1/2005, regardless of the plan’s funded ratio. These rules apply beginning in 2008, with a delayed effective date applicable to collectively bargained plans.

Anti-Cutback Relief for PPA-Related Plan Amendments. Plan amendments necessary to implement PPA changes are treated as complying with the IRC §411(d)(6) prohibition against reductions in accrued benefits if the amendment is made by the close of the plan year beginning in 2009. [PPA §1107(b)] For example, reductions in lump sum amounts payable because of a plan amendment changing the valuation basis for lump sum distributions will not be considered violations of the anti-cutback rule.

Effective Dates and Other Key Dates in PPA

The 2008 delayed effective date of new minimum funding standards for pension plans may be the date that will get the most press of the Pension Protection Act of 2006, but one of our first practical tasks needs to be to sort through the entire tangle of dates set by the legislation.

Retroactive Applicability

• Notice of Blackout Period — Technical change relating to the definition of a one-person plan for purposes exemption from the participant blackout notice requirement, retroactively effective to 1/26/2003 as if included in P.L. 107-204. [PPA §509(b)]
• Purchase of Permissive Service Credit — Clarifications, retroactively effective as if included in TRA 97 (i.e., purchases on or after 1/1/1998) and EGTRRA (i.e., trustee-to-trustee transfers on or after 1/1/2002). [PPA §821(d)]

9/12/2001

• Penalty-Free Early Withdrawals upon Extended Active Military Service. [PPA §827(c)(1)] See also the deadline for certain filings at 8/17/2007.

Periods Beginning On or After 6/29/2005

• Hybrid Plan Rules. [PPA §701(e)(1)] Additional specific effective dates for certain PPA rules for hybrid plans are described below.

6/30/2005

• Multiemployer Plan Amortization Extensions — Pre-PPA rules apply for applications filed on or before 6/30/2005. [PPA §201(d)(2), PPA §211(b)(2)]

• Conversion of Traditional Defined Benefit Plan to Hybrid Plan – PPA rules apply to amendments adopted and effective on or after 6/30/2005. [PPA §701(e)(5)]

7/27/2005

• Limitation on PBGC Guarantee of Shutdown Benefits — Applicable to benefits payable because of event occurring on or after 7/27/2005. [PPA §403(b)]

1/1/2006

• Rules for Substantial Owner Benefits in Terminated Plans. [PPA §407(d)]

Taxable Years Beginning On or After 1/1/2006

• Tax-Free Distributions from IRAs for Charitable Purposes — Provision sunsets after 2007. [PPA §1201(c)(1)]

Plan Years Beginning On or After 1/1/2006

• Extension of 2005 Interest Rate Basis for Funding Standards — Through 2006 and 2007 plan years. [PPA §301]
• Extension of 2005 Interest Rate Basis for PBGC Variable-Rate Premiums – Through 2006 and 2007 plan years. [PPA §301(a)(3)]
• Interest Rate Assumption for §415 Benefit Limitations Applicable to Lump Sum Distributions. (Note: Actual PPA language refers to distributions made in “years” versus “plan years.”) [PPA §303(b)]
• Determination of Average Compensation for IRC §415 Limits. [PPA §832(b)] (Note: PPA refers to “years” rather than to “plan years.” The change will likely be applied to limitation years beginning on or after 1/1/2006.)
• Deduction Rules for Combination of Plans. [PPA §803(d)]
• Special Deduction Rule under IRC §404(a)(1)(D). [PPA §801(e)(2)]

8/17/2006 – Date of PPA Enactment

• Hybrid Plan Rules for Present Value of Accrued Benefit — Applicable to distributions made after PPA enactment. [PPA §701(e)(2)]
• Special Funding Rules for Certain Plans Maintained by Commercial Airlines — Applicable to plan years ending after PPA enactment. [PPA §402(j)]
• Extension of Nondiscrimination Requirement Moratorium to All Governmental Plans — Applicable to years beginning after PPA enactment. [PPA §861(c)]
• Voluntary Early Retirement Incentive and Employment Retention Plans Maintained by Local Educational Agencies. [PPA §1104(d)]
• Treatment of Plan Maintained by Indian Tribal Government as Governmental Plan – Applicable to years beginning on or after PPA enactment. [PPA §906(c)]
• Grandfather Rule under IRC §401(a)(9) for Church Plans that Self-Annuitize — Applicable to plan years ending after PPA enactment. [PPA §865(a)]
• Transfer of Excess Pension Assets for Retiree Health Benefits. [PPA §841(b)]
• Waiver of Excise Tax on Early Withdrawals by Public Safety Employees – Applicable to distributions after PPA enactment. [PPA §828(b)]
• Applicability of IRS regulations for minimum required distributions under §401(a)(9) to governmental plans, as contrasted with good-faith interpretation of statute. [PPA §823. Note: Effective date here based on JCX-30-06 Technical Explanation.]
• No Reduction in Unemployment Compensation on Account of Pension Rollover — Applicable to weeks beginning on and after PPA enactment. [PPA §1105(b)]
• Prohibited Transaction Rules for Certain Financial Investments – Applicable to transactions after PPA enactment. [PPA §611(h)(1)]
• Bonding Requirements – Applicable to plan years beginning after date of PPA enactment. [PPA §611(h)(2)]
• Clarification of Fiduciary Rules — Relating to selection of annuity contract as optional form of distribution from an individual account plan. [§625(b)]
• Correction Period for Certain Transactions involving Securities and Commodities – Applicable to transactions after PPA enactment. [PPA §612(c)]
• Increase in Penalties for Coercive Interference with Exercise of ERISA Rights – Applicable to violations occurring on or after PPA enactment. [PPA §623(b)]
• Multiemployer Withdrawal Liability — Continuation if work contracted out. [PPA §204(b)(2)]
• Procedures for Multiemployer Withdrawal Liability Disputes — Applicable to receipt of notification on or after PPA enactment with respect to transaction occurring on or after 1/1/1999. [PPA §204(d)(2)]
• ERISA Title IV Treatment of Controlled Group Membership Change or Cessation. [PPA §409(b)]
• Disclosure of Plan Termination Information to Plan Participants. [PPA §506(c)]
• Interest on Refund of PBGC Premiums. [PPA §406(b)]
• Directorship of PBGC. New authorization and procedures. [§411(d)]
• Nonqualified Deferred Compensation Plans — Restrictions on funding of non-qualified plans if employer maintains an underfunded or terminated single-employer plan. Applies to transactions after PPA enactment. [PPA §116(c)]
• Tax Treatment of Death Benefits from Corporate-Owned Life Insurance — Applicable to contracts issued after PPA enactment. [PPA §863(d)]
• Rules Applicable to Tax Court Judges
  • Participation in Thrift Savings Plan. [PPA §853] Actual participation will commence at the next open season.
  • Cost-of-Living Adjustments for Tax Court Judicial Survivor Annuities. [PPA §851(b)]
  • Cost of Life Insurance Coverage for Judges Age 65 and Older. [PPA §852]

9/16/2006 – 30 Days After Date of PPA Enactment

• Employer Bankruptcy — Bankruptcy filing substituted for termination date. [PPA §404(c)]
• Acceleration of PBGC Computation of Benefits Attributable to Recoveries. [PPA §408(c)]

Transactions On or After 1/1/2007

• Investment Advice — Change to prohibited transaction rules. [PPA §601(a)(3), §601(b)(4)]
• Rollovers by Nonspouse Beneficiaries. [PPA §829(b)]
• Multiemployer Plan Withdrawal Liability Reforms
  • Increase in Limits. [PPA §204(a)(3)]
  • Applicability to Plans In Building/Construction. [PPA §204(c)(3)]

Taxable Years Beginning On or After 1/1/2007

• Transfer of Excess Pension Assets to Multiemployer Health Plan. [PPA §842(b)]
• Allowance of Reserve for Medical Benefits of Plans Sponsored by Bona Fide Associations. [PPA §843(b)]
• Distributions from Governmental Plans for Health and Long-Term Care Insurance for Public Safety Officers. [PPA §845(c)]
• Rollovers of After-Tax Contributions in 403(b) Annuities. [PPA §822(b)]
• Saver’s Credit — Elimination of sunset. [PPA §812]
• Inflation Indexation of Gross Income Thresholds for Retirement Savings Initiatives. [PPA §833(d)]
• Allowance of Additional IRA Payments in Certain Bankruptcy Cases. [PPA §831(b)]
• Direct Payment of Tax Refunds to IRA. [PPA §830(b)]
• Elimination of Aggregate Limit for Usage of Excess Funds from Black Lung Disability Trusts. [PPA §862(b)]

Plan Years Beginning On or After 1/1/2007

• Accelerated Vesting of Employer Nonelective Contributions. [PPA §904(c)] Delayed effective date for collectively bargained plans.
• Diversification Requirements for Defined Contribution Plans. [PPA §901(c)(1)] Delayed effective date applies to collectively bargained plan.
• Investment of Assets where Participant Fails to Direct. [PPA §624(b)(1)]
• Notice of Freedom to Divest Employer Securities. [PPA §507(d)]
• Distributions during Working Retirement. [PPA §905(c)]
• PBGC Premiums for Small Plans — Relief. [PPA §405(b)]
• Notice and Consent Period regarding Distributions. [PPA §1102(a)(3), (b)(2)]
• Periodic Pension Benefit Statements — Modifications to rules. [PPA §508(c)] Delayed effective date for collectively bargained plans.
• Simplified Annual Filing Requirements
  • Filing Requirement for Plans with Fewer Than 25 Participants. [PPA §1103(b)]
  • Filing Requirement for Owners and Spouses. [PPA §1103(a)(4)]
• Exemption of Certain Church Plan Benefits from Compensation-Based IRC §415 Limitation. [PPA §867(b)] (Note: PPA refers to “years” rather than to “plan years.” The change will likely be applied to limitation years beginning on or after 1/1/2007.]

2/13/2007 – 180 Days After Date of PPA Enactment

• Hardship Distribution Rules — Modified regulations. [PPA §826]

8/17/2007 – 1 Year After Date of PPA Enactment

• Waiver of Limitations relating to Exemption from Early Penalty Penalty for Certain Military Personnel – Deadline for filing claim for refund or credit of certain tax overpayment. [PPA §827(c)(2)] See also the underlying provision at 9/12/2001.

• Revocation of Election of Treatment as Multiemployer Plan — Action must be taken within 1 year after PPA enactment. [PPA §1106]
• Domestic Relations Orders
  • Time and Order of Issuance of Domestic Relations Order. [PPA §1001] Regulations due within one year after PPA enactment.
  • Benefit Entitlement of Divorced Spouses to Railroad Retirement Annuities Independent of Actual Entitlement of Employee. [PPA §1002(b)]
  • Extension of Tier II Railroad Retirement Benefits to Surviving Former Spouses pursuant to Divorce Agreements. [PPA §1003(b)]

Transactions On or After 1/1/2008

• Direct Rollover from Retirement Plan to Roth IRA. [PPA §824(c)]

Plan Years Beginning On or After 1/1/2008

• Minimum Funding Standards for Defined Benefit Pension Plans — [PPA §101(d), §111(b)]
  • Minimum Funding Standards for Single-Employer Plans — [PPA §102(c), §112(b)]
    • Transition Rule — Exemption from new shortfall amortization base for plans reaching certain targeted funded ratios during a 3-year phase-in period beginning in 2008. [ERISA §303(c)(5) added by PPA §102(a); IRC §430(c)(5) added by PPA §112(a)]
    • Benefit Limitations for Underfunded Single-Employer Plans — With delayed effective date as late as plan years beginning on or after 1/1/2010 for plans maintained subject to collective bargaining agreement. [PPA §103(c), §113(b)]
  • Minimum Funding for Multiemployer Plans — [PPA §201(d)(1), §211(b)(1)]
    • Additional Funding Rules for Plans in Endangered or Critical Status. [PPA §202(f)(1), §212(e)(1)] Special dates apply for certain notices and for certain restored benefits. Note sunset rule described for 2015 below.
    • Determinations of Impending Insolvency. [PPA §203(b), §213(b)]
  • Technical and Conforming Amendments — Generally relating to minimum funding standards. [PPA §107(e)]
• Deduction Limit.
  • Single-Employer Plans. [PPA §801(e)(1)]
  • Multiemployer Plans. [PPA §802(b)]
• Requirement for Additional Survivor Annuity Option. [PPA §1004(c)] Delayed effective date for collectively bargained plans.
• Plan Amendment for Lump Sum Limit under IRC §415 – Must be adopted by end of plan year. [PPA §301(c)]
• Automatic Contribution Arrangements. [PPA §902(g)]
• Diversification Requirements for Certain Employer Securities Held in ESOP. [§901(c)(3)]
• Increase in Maximum Bond Amount — Applicable to plan holding employer securities. [PPA §622(b)]
• Interest Rate Assumption for Determination of Lump Sum Distributions — Subject to 5-year phase-in. [PPA §302(c)]
• Hybrid Plan Vesting and Interest Rate Requirements. [PPA §701(e)(3)] Earlier applicability may be elected. Delayed effective date for collectively bargained plans.
• Inapplicability of Fiduciary Liability Relief during Suspension of Investment Direction. [PPA §621(b)] Delayed effective date for collectively bargained plans.
• PBGC Variable-Rate Premiums — Modification of valuation assumptions. [PPA §401(a)(2)]
• ERISA 4010 Filings — Changes in filing criteria. [PPA §505(c)] (Note: PPA technically refers to “years” versus “plan years.”)
• Defined Benefit Plan Funding Notice. [PPA §501(d)]
• Access to Multiemployer Pension Plan Information. [PPA §502(d)]
• Additional Annual Reporting Requirements. [PPA §503(f)]
• Electronic Accessibility of Annual Report Information. [PPA §504(b)]

Taxable Year Containing 1/1/2009

• Special Exemption Excise Tax on Multiemployer Plan Funding Deficiency — Applicable only to one particular multiemployer plan. [PPA §214]

Plan Years Beginning On or After 1/1/2009

• Anti-Cutback Relief for PPA-Related Plan Amendments — Amendment must be made on or before the final date of the 2009 plan year. [PPA §1107(b)] Delayed effective date applies for governmental plan.

Transactions On or After 1/1/2010

• Single-Employer Plan Termination Premium — Repeal of sunset. [PPA §401(b)]
• Tax-Free of Exchanges among Certain Insurance Policies for Long-Term Care Contracts. [PPA §844(g)(2)]
• Information Reporting relating to Charges for Qualified Long-Term Care Insurance Contracts. [PPA §844(g)(3)]

Taxable Years Beginning On or After 1/1/2010

• Tax Treatment of Insurance Contracts with Long-Term Care Insurance Feature — Applicable to contracts issued on or after 1/1/1997. [PPA §844(g)(1)]
• Treatment of Policy Acquisition Expenses for Certain Long-Term Care Insurance Contract Arrangements. [PPA §844(g)(4)]

Plan Years Beginning On or After 1/1/2010

• Eligible Combined Defined Benefit Plan and Qualified Cash or Deferred Arrangement. [PPA §903(c)]

Plan Years Beginning On or After 1/1/2011

• Elimination of EGTRRA Sunset. [PPA §811]
• Plans of Certain Government Contractors
  • Minimum Funding Standards — Changes to minimum funding standards otherwise applicable under the preceding portions. An earlier effective date applies if the plan ceases to be an eligible government contractor plan or if the CASB publishes pension harmonization rules. [PPA §106(a)]
  • Interest Rate — For plan years beginning on or after 1/1/2008 and prior to the relevant effective date for the new funding standards for government contractors, use of the third segment rate. [PPA §106(b)]

Plan Years Beginning On or After 1/1/2014

• PBGC Settlement Plans — Changes to minimum funding standards otherwise applicable under the preceding portions. [PPA §105]

Plan Years Beginning On or After 1/1/2015

• Multiemployer Plans – Special New Minimum Funding Rules — Sunset. [PPA §221(c)]

Plan Years Beginning On or After 1/1/2017

• Multiple Employer Plans of Certain Cooperatives
  • Minimum Funding Standards — Changes to minimum funding standards otherwise applicable under the preceding portions. [PPA §104(a)]
  • Interest Rate — For plan years beginning on or after 1/1/2008 and prior to 1/1/2017, use of the third segment rate. [PPA §104(b)]

Other

• Missing Participant Rules. Applicable to distributions made after final regulations. [PPA §410(c)]
• PBGC PIMS Model Information. As soon as practicable. [PPA §412]