The Pension Protection Act of 2006 was signed by President Bush on August 17, 2006.  The PPA makes permanent the increased pension and IRA limits, previously scheduled to "sunset" in 2010.  It contains significant changes in the minimum funding requirements for defined benefit plans, with a goal to reduce the number of under-funded plans.   The PPA also includes rules regarding hybrid plans, such as the previously controversial cash-balance plan.  The Act includes provisions affecting 401(k) and profit sharing plans for faster vesting, diversification of employer stock, automatic enrollments, disclosures, and investment advice.  We will be keeping you informed regarding effective dates and details of these rules.

Special Newsletter - March 2008:

The Impact of the Pension Protection Act on Defined Benefit Plans

Plan Limits For 2007 and 2008;

Some of these limits apply to the calendar year and some apply to the plan year. Please contact us if you need clarification. In addition, the Social Security Taxable Wage Base was changed from $97,500 for 2007 to $102,000 for 2008. The following limits apply to the individual participant, and have been increased as follows:

**Note that over 5% owners are considered Highly-Compensated regardless of compensation. News Release 1R-2006-162 can be found at Internal Revenue Service website http://www.irs.gov/newsroom/article/0,,id=163616,00.html

Timing for Safe-Harbor Notices

A Safe-Harbor 401(k) plan is a popular option for employers who like the idea of 401(k) plans, but find it difficult to pass the complicated nondiscrimination rules. Safe Harbor plans provide for special contributions made by the employer for the participants. These safe-harbor contributions may be a percentage of pay or a match on participant deferrals. If these safe-harbor contributions satisfy all the applicable rules, then nondiscrimination testing is not required. However, there are timing issues to establishing a safe-harbor plan or to add a safe-harbor to an existing plan. Notices are required for participants.

If you have a defined contribution plan without 401(k) provisions, you can add 401(k)/safe harbor provisions for the current year, provided the plan is amended and the safe harbor notice is distributed to employees by October 1st of that year.

If you have a 401(k) plan and want to add safe harbor provisions, the notice to employees has to be done by the December 1 preceding the year you want to add the safe harbor. (For 2008, the notice has to be distributed by December 1, 2007.)

The Pension Protection Act of 2006 (PPA 2006) has introduced new reporting requirements for defined benefit plans, one of which is an annual actuarial certification of a plan’s funding level.  This certification (referred to in the law as the AFTAP Certification), determines whether there are any restrictions on a defined benefit plan’s ability to pay benefits.  AFTAP is an acronym for Adjusted Funding Target Attainment Percentage.

AFTAP Certification

There are no restrictions under PPA 2006 if the plan’s funded level is over 80%.  If the AFTAP is less than 80%, restrictions apply and notices must be given to all participants within 30 days of when the restriction applies.  If the AFTAP is between 60% and 80%, the following benefit restrictions apply:

1. No amendments can increase benefits under the plan.
2. Lump sum distributions are restricted to a portion of the value of the accrued benefit.

If the AFTAP is under 60%, then the following restrictions apply:

1. No amendments can increase benefits under the plan.
2. No lump sums can be paid to anyone.
3. Benefit accruals are deemed to be frozen.

We will be sending out special newsletters regarding these issues shortly.