National Retirement Services, Inc.

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August 29, 2006

Pension Protection Act of 2006 (PPA 2006)

Highlights of the Pension Protection Act of 2006
For a detailed technical explanation of the Pension Protection Act of 2006 please visit:
www.house.gov/jct/x-38-06.pdf#serach.com

References:

ADP & ACP – Actual Deferral Percentage & Actual Contribution Percentage
DB – Defined Benefit
DC – Defined Contribution
EBSA – Employee Benefits Security Administration
EPCRS – Employee Plans Compliance Resolution System
PBGC – Pension Benefit Guaranty Corporation
PFEA – Pension Funding Equity Act
QJSA – Qualified Joint and Survivor Annuity

PPA 2006 changes in effect in 2006:

Act Section	Change	Plans Affected
116	Non-qualified plans cannot “fund” their benefits if the DB plans are less than 80% funded.	409A Non-qualified Plans
301	DB funding interest rates continue using PFEA rates until 2008. This will lower the PBGC premiums and Current Liability limits.	DB
303	Maximum lump sum payments will be limited to the lesser of the plan value, the 415 limit at 5.5%, or 105% of the value using 417(e) rates.	DB
403-409	PBGC special rules.	DB
410	Missing Participants – PBGC will accept their funds, including non-covered plans. PBGC must issue regulations before this starts.	DB w/ PBGC DB non-PBGC DC Plans
506	Participant Disclosure on PBGC terminations must be made within 15 days.	DB with distress terminations
509	Sarbanes Oxley blackout notices are not needed for plans covering owners only.	DC plans
625	EBSA must issue regulations within one year, describing the “safest annuity available.” DC plans paying optional forms will be exempt from “safest annuity” requirements.	DB DC plans with annuity options
701	Cash Balance DB plans can use a “safe-harbor” from age-discrimination. Other technical issues on Cash Balance provisions were added.	Cash Balance DB
801(d)	DB plans have higher deduction limits. Up to 150% of current liability is deductible in 2006.	DB
803(a) & (b)	Combined DB & DC plans. The combined limit is the greater of 25% of pay, or the sum of the DB limit plus 6% of pay for the DC plan.	Combined DB & DC plans
823	Minimum distributions for governmental plans will be clarified.	Governmental Plans – DB & DC
826	Hardship Withdrawals for 401(k) plans will be expanded to allow a hardship for the spouse, dependents or beneficiaries of a plan, including domestic partners.	401(k)
827	Withdrawals by reservists called to active duty will be exempt from the 10% early withdrawal penalty.	All
832	Maximum benefits limited to 100% of average pay will include pay from original hire date, not limited to plan years after effective date.	DB
861	Non-discrimination rules are not applied to governmental plans.	Governmental Plans – DB & DC
902	State law regulating automatic 401(k) enrollments is pre-empted.	401(k) with automatic enrollments
906	Indian tribal plans are governmental plans if the group covered is performing governmental functions.	Indian Tribes
1101	EPCRS may be expanded and modified to give IRS authority to waive income and excise (penalty) taxes.	All

PPA 2006 changes in effect in 2007:

Act Section	Change	Plans Affected
405	PBGC Variable Premiums for small DB plans (up to 25 participants) capped at $3,125 or less.	Small DB plans with PBGC coverage
507	DC plans with employer stock must give 30-day advance notice of right to divest from employer securities.	DC plans with company stock
601	Investment advice is permitted by certain qualified advisors.	DC plans with participant directed accounts
624	EBSA to issue regulations on the default investment option when participants fail to elect investments.	DC plans with participant directed accounts
822	403(b) plans can rollover after tax funds.	403(b) plans
829	Rollovers by non-spouse beneficiaries, including domestic partners.	All
841	Surplus DB assets may be transferred to retiree health benefits.	Overfunded DB plans
901	Participants allowed to divest employer securities purchased from employee contributions or deferrals.	DC plans with participant directed accounts
904	DC plans will move to top-heavy vesting.	DC plans
905	Phased Retirement distributions allowed after age 62, regardless of employment status or Normal retirement age.	All plans that adopt this provision
1102	Annuity election for QJSA extended to 180 days.	Plans with annuity options
1103	5500-EZ Reporting not required for one-person plans under $250,000 assets.	EZ filers

PPA 2006 changes in effect in 2008:

Act Section	Change	Plans Affected
101	New, more complicated defined benefit rules will apply for minimum funding, for PBGC premiums, for lump sum payouts, and for determination of plan benefits.	DB
101	Underfunded DB plans will be required to close the gap in 7 years. Seriously underfunded plans will be prohibited from accruing any new benefits until they are at least 60% funded. Moderately underfunded plans will be prohibited from increasing benefits until they are at least 80% funded. Underfunded plans must give participants notice within 30 days after lump sums are restricted.	DB
201	Union multi-employer plans will have new funding rules.	Union DB
501	PBGC covered plans must disclose when they are less than 100% funded.	DB
504	5500 forms must be electronic filings.	All
505	Moderately underfunded PBGC plans must disclose financial information to PBGC.	DB
621	DC plans with changes in investment platforms have new rules for trustees during blackout periods.	DC with participant direction
702	Cash Balance DB plans involved in mergers will need new Treasury regulations.	Cash Balance DB
801	PBGC covered plans will not have a combined plan limit on deductions.	Combined DB/DC
824	Rollovers into a Roth IRA will be permitted unless income exceeds $100,000.	All
902	Automatic enrollments in 401(k) plans will be expanded, including a safe-harbor “qualified automatic enrollment” that satisfies top-heavy, ADP & ACP tests. Employees can take back their funds without penalty for a few months after first deferral.	401(k)
902	Gap earnings on refunds are determined only through year end of the year deposited.	401(k)
904	Cash Balance DB plans will require vesting similar to top-heavy plans.	Cash Balance DB
1004	Annuity options will have to include 75% QJSA if the automatic rule is 50%.	DB

PPA 2006 changes in effect in 2009 and beyond:

Act Section	Change	Plans Affected
1106	Amendment of plans must be completed in 2009 plan year to protect from anti-cutback rules.	All plans starting in 2009
901	Cash Balance DB plans tied to employer securities must allow participants to diversify out of employer securities.	Cash Balance DB plans with Participant discretion starting in 2009
903	DB plans will be able to accept employee deferrals under 401(k) without requiring a separate plan. Assets must be separately identified.	DB Plans starting in 2010

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