Fugue: PPA

* * * Currently Under Construction * * *

The Pension Protection Act of 2006 was signed in law on August 17, 2006.
This page is under development, with the intention of converting it from draft notes
on the pension reform legislative process into notes on the final law. - 8/30/2006

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Pension Protection Act of 2006 (H.R. 4)

Key Background Documents -

• H.R. 4 (Congressional core page)
• Technical Explanation, Joint Committee on Taxation (JCX-38-06, 8/3/06)

The 2006 legislative year begins where 2005 left off: Congress takes up major pension reform legislation. Last autumn, the Senate passed S. 1783 and the House passed H.R. 2830, both by significant bipartisan majorities. A joint House-Senate conference committee will convene early in 2006 to iron out differences between the two bills, with final congressional action on a compromise bill anticipated during the first quarter of the year. Currently the legislation faces a veto threat raised by several provisions included in the Senate version of the legislation.

Key Provisions

Single Employer Pension Plan Funding

Actuarial Assumptions -

• H.R. 2830 - Interest rate must be based on a corporate yield curve to be constructed by Treasury. Mortality must be set at the RP-2000 mortality table with projection scale AA. A plan may use a different mortality table upon approval by Treasury.

• S. 1783 - Similar to H.R. 2830. Additional conditions apply to use of alternative mortality assumption.

Asset Smoothing -

• H.R. 2830 - Average of fair market values over no more than 36-month period; restricted to corridor of 90%-110% of market value.

• S. 1783 - Average of fair market values over no more than 12 months.

Amortization of Gains or Losses -

• H.R. 2830 - 7 years.

• S. 1783 - Similar to H.R. 2830. Immediate recognition to extent that plan funded status is less than 60%.

Credit Balance - Pre-2007 credit balance retained under both bills.

• H.R. 2830 - “Pre-funding” balance created for post-2006 contributions. New balances based on actual asset return. Credit balance may not be used if plan funded status is less than 80% without taking into account post-2006 pre-funding balance. Balances subtracted for determination of funding shortfall.

• S. 1783 - Post-2006 contributions added to pre-2007 credit balance. New changes based on actual asset return. If plan funded status is less than 80%, contribution is greater of normal cost or 25% of minimum required contribution, regardless of credit balance. Balance subtracted for determination of funding shortfall.

Special Funding Rules for “At Risk” Liability -

• H.R. 2830 - “At risk” liability rules apply to a plan with funded status less than 60% (excluding credit balance) in prior year. All participants are assumed to retire at the earliest eligibility with the most valuable benefit form. Additional loads: $700 per participant; 4% of liability. Phase-in: 20% per year.

• S. 1783 - “At risk” liability rules apply to a plan with funded status less than 93% in company rated below investment grade for three years. Measurement must assume that those eligible to retire in the next 7 years will elect benefits in the most valuable form. Phase-in: 20% per year.

Transition -

• H.R. 2830 - Funding rules: 5 years for plans not subject to deficit reduction contribution.

• S. 1783 - Funding rules: 3 years.

Single Employer Pension Plan Benefit Restrictions

Multiemployer Pension Plan Funding

Interest Rate Assumptions

PBGC Guarantees

• H.R. 2830 - PBGC annual flat premium for single-employer plans increases to $30 per participant for 2006, indexed in subsequent years by increase in national average earnings. (Note - This provision has already been enacted via S. 1932.) The premium increase would be phased in over 3 years for plans with less than 80% funded status, or over 5 years for better funded plans. (Phase-in was not included in S. 1932. If subsequently enacted retroactively, employers may need to seek premium refunds for 2006.) Special 3-year annual premium of $1,250 per participant for plans that undergo a distress or involuntary termination. (Special termination premium has already been enacted in S. 1932.) Spot interest rate would be used for valuing vested benefits for variable rate premium. [H.R. 2830 §401]

• S. 1783 - PBGC annual flat premium for single-employer plans increases to $30 per participant for 2006, indexed in subsequent years by increase in national average earnings. (Note - This provision has already been enacted via S. 1932.) Interest rate for valuing liabilities (including non-vested benefits) for purposes of the variable-rate premium would rely on yield curve. (Not enacted in S. 1932.) [S. 1783 §401]

Deduction Limits

Maximum Deductible Contributions (DB) -

• H.R. 2830 - 150% of liability plus normal cost.

• S. 1783 - 180% of current liability for 2006. Post-2006: 180% of target liability plus normal cost plus liability for future salary increases.

Disclosure

Cash Balance Pension Plans

Automatic Enrollment

Participant Education

Spousal Protections

EGTRRA Permanence

Plan Amendments

Administrative Provisions

Other Retirement Plan Provisions

Healthcare Provisions

Source Documents and Other Materials

Administration

• Administration’s Proposal for Pension Reform
• The Corporate Bond High Quality Centered Yield Curve for Pension Discounting (1/24/06)
• President Discusses Economy and Tax Relief in North Carolina (12/5/05)
• The Impact of Pension Reform Proposals On Claims against the Pension Insurance Program, Losses to Participants, and Contributions [PBGC (10/26/05)]

House of Representatives

• H.R. 2830 - Pension Protection Act of 2005.
• House Votes to Strengthen Americans’ Pensions (12/15/06)
• Pension Protection Act (H.R. 2830): Strengthening Outdated Worker Pension Rules [House Education & the Workforce Committee (12/14/06)]
• Chairman’s Amendment Summary, Committee on Ways and Means (11/8/05)

Senate

• S.1783 - Pension Security and Transparency Act of 2005. (See also S.Amdt 2901, 3/3/06.)
• S. 1783 - the Pension Security and Transparency Act of 2005 [All Finance Committee Staff Memorandum (9/28/05)]

Joint Committee on Taxation

• Comparison of the Provisions of H.R. 2830, the “Pension Protection Act of 2005,” as Passed by the House of Representatives on December 15, 2005, and H.R. 2830, the “Pension Security and Transparency Act of 2005,” as Passed by the Senate on March 3, 2006 [JCX-13-06 (3/8/06)]
• Estimated Revenue Effects of H.R. 2830 [JCX-87-05 (12/16/05)]
• Estimated Revenue Effects of S. 1783 [JCX-86-05 (12/15/05)]

Non-Governmental Organizations

American Academy of Actuaries

• Analysis of Congressional Pension Funding Proposals (11/05)
• Analysis of Congressional Pension Funding Reform Proposals: Multiemployer Plan Provisions (11/05)
• Pension Funding Reform for Single Employer Plans (2/28/05)

ERISA Industry Committee

• Summary of Major EGTRRA Pension Provisions

National Council on Teachers Retirement

• Comparison of House and Senate Pension Bills (11/30/05)
• House Ways and Means Passes Pension Bill (11/10/05)

Pension Coalition (The)

• Side-by-Side of Pension Proposals (12/22/05)

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Other Legislative Activity

S. 219 - National Employee Savings and Trust Guarantee Act (NESTEG). Portions merged with S. 1783, detailed above. Not otherwise currently active.