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Pension Protection Act of 2006

By the Tax Management Staff
Washington, D.C.

The Pension Protection Act of 2006, P.L. 109-280, will have a far-reaching impact on the operations of private pension plans, in particular, by requiring pension plans to meet a 100% funding target in seven years. The Act makes extensive amendments to the benefit provisions of the tax Code and to the Employee Retirement Income Security Act of 1974 (ERISA). The Act was passed by the House of Representatives on July 28, and by the Senate on August 3, and was signed by the President on August 17.

INTRODUCTION

The Act, which took a long and sometimes bumpy road to passage by Congress, replaces the funding requirements for defined benefit pension plans, imposes new benefit limits on underfunded plans and changes the premiums that the sponsors of underfunded plans must pay to the Pension Benefit Guaranty Corporation (PBGC) to insure a minimum level of benefits to their participants. Also, the Act extends certain tax incentives for retirement savings, modifies tax provisions relating to spending for health care, establishes a safe harbor for employers to provide investment advice to help employees manage their §401(k) accounts and provides for automatic enrollment of employees in §401(k) plans.

The Act clarifies the legal standing of cash balance pension plans, many of which have been in regulatory limbo for years in the IRS’s determination letter program.

Numerous but less well-known provisions in the Act make a variety of changes to the pension and benefit universe, such as modifications to the plan asset rules that determine when participant contributions become assets of a plan, and to the prohibited transaction rules, which prohibit a wide range of transactions between a plan and a party in interest unless an exemption applies. While many of these provisions may seem technical, they could have significant effects on the administration and structure of benefit plans and the manner in which fiduciaries operate.

DISCUSSION OF ACT PROVISIONS

TITLE I–REFORM OF FUNDING RULES FOR SINGLE-EMPLOYER DEFINED BENEFIT PENSION PLANS

MINIMUM FUNDING RULES



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  • Article Name: Pension Protection Act of 2006
  • Author: International
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This entry was last updated: October 22, 2016



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