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Trust Examination Manual

Pension Protection Act of 2006
R. Pension Protection Act of 2006

R.1. Background

R.2. Title I - Reform of Funding Rules for Single-Employer Defined Benefit Pension Plans

R.2.a. Subtitle A - Amendments to the Employee Retirement Income Security Act of 1974

R.2.b. Subtitle B - Amendments to the Internal Revenue Code of 1986

R.3. Title II - Funding Rules for Multi-Employer Defined Benefit Plans

R.3.a. Subtitle A - Amendments to the Employee Retirement Income Security Act of 1974

R.3.b. Subtitle B - Amendments to the Internal Revenue Code of 1986

R.3.c. Subtitle C - Sunset of Additional Funding Rules

R.4. Title III - Interest Rate Assumptions

R.5. Title IV - PBGC Guarantee and Related Provisions

R.6. Title V - Disclosure

R.7. Title VI - Investment Advice, Prohibited Transactions, and Fiduciary Rules

R.7.a. Subtitle A - Investment Advice

Exemption for Fiduciary Advisers

Fiduciary Adviser

Eligible Investment Advice Arrangement Requirements

R.7.b. Subtitle B - Prohibited Transactions

Exemption for Block Trading

Exemption for Electronic Communications Network

Exemption for Party-In-Interest Service Providers

Exemption for Foreign Exchange Transactions

Exemption for Cross Trading

Exemption for Certain Corrected Party-in-Interest Transactions Involving Securities and Commodities

R.7.c. Subtitle C - Fiduciary and Other Rules

Default Investments Where Plan Participants Fail to Exercise Investment Options

Proposed Department of Labor Rule--Section 2550.404c–5--Fiduciary Relief for Investments in Qualified Default Investment Alternatives

R.8. Title VII - Benefit Accrual Standards

R.9. Title VIII - Pension Related Revenue Provisions

R.9.a. Subtitle A - Deduction Limitations

R.9.b. Subtitle B - Certain Pension Provisions Made Permanent

R.9.c. Subtitle C - Improvements in Portability, Distribution and Contribution Rules

R.9.d. Subtitle D - Health and Medical Benefits

R.9.e. Subtitle E - United States Tax Court Modernization

R.9.f. Subtitle F - Other Provisions

R.10. Title IX - Increase in Pension Plan Diversification and Participation

R.11. Title X - Spousal Pension Protection

R.12. Title XI - Administrative Provisions

R.13. Title XII - Provisions Relating to Exempt Organizations

R.14. Title XIII - Other Provisions

R.15. Title XIV - Tariff Provisions

 

R.1. Background

The Pension Protection Act of 2006 (PPA) was signed into law on August 17, 2006. The PPA is widely considered landmark legislation which is responsible for the most comprehensive changes to the Internal Revenue Code of 1986 (Code) and Employee Retirement Income Security Act of 1974 (ERISA) relating to all types of retirement plans since the enactment of ERISA in 1974. Although the PPA's primary purpose was to enact retirement plan reforms, its passage also addressed non-retirement issues. Titles I through XI of the PPA deal specifically with retirement plan issues, while the remainder of the Act, Titles XII through XIV, relate to non-retirement matters. The trust manual review of PPA reforms and changes will concentrate on the retirement plan components of the PPA.

Among the numerous retirement plan changes enacted, the PPA established new minimum funding standards for single-employer and multi-employer defined benefit pension plans; it extended interest rate rules for the funding standard account, requiring the use of a rate based on long-term investment grade corporate bonds rather than 30-year Treasury securities; it amended the interest rate calculation for lump sum distributions; it requires fully-funded single-employer plans to pay variable-rate premiums to the Pension Benefit Guaranty Corporation; it provides alternative funding rules for commercial passenger airline defined benefit plans, and establishes basic requirements relating to funding notices provided by defined benefit plans; it permits fiduciary advisers to give investment advice to participants or beneficiaries under specified conditions; it establishes rules governing the treatment of defined benefit pension plans which fail to comply with age discrimination prohibitions; and it increases deduction limits for single-employer and multi-employer plans. The PPA also permits annuity contracts and life insurance contracts to include long-term care insurance provisions; it mandates defined contribution plans holding publicly traded securities to provide employees with: (a) the opportunity to divest employer securities; and (b) at least three investment options other than employer securities; under certain conditions, it permits employers to automatically enroll employees in defined benefit plans; it establishes rules governing the division of pension benefits between divorced parties; it authorizes the Secretary of the Treasury to establish or change the Employee Plans Compliance Resolution System and any other employee plans correction system or policies; and it prohibits a reduction of unemployment compensation resulting from pension rollovers. It also makes permanent some rules from the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) which were scheduled to expire in 2010. These include maximum contributions to IRAs and 401(k)s, and “catch up” contributions for individuals 50 and older. It also ensures the permanency of Roth IRAs and Roth 401(k)s, increased IRA rollover ability, mandatory cash outs of de-minimis account balances, hardship distributions from 401(k) and 403(b) plans, and Section 529 college savings plans.

In other areas unrelated to retirement plans, the PPA amends the Internal Revenue Code relating to the treatment of certain transactions involving charitable contributions, tax-exempt organizations, and supporting organizations; it amends the EGTRRA to permanently extend qualified tuition program provisions; and contains provisions dealing with mining, trade, tariff, and import duty issues.

Although the PPA modifies both the Code and ERISA, the discussion below is generally confined to the changes in ERISA.

 

R.2. Title I - Reform of Funding Rules for Single-Employer Defined Benefit Pension Plans

R.2.a. Subtitle A - Amendments to the Employee Retirement Income Security Act of 1974

Section 101 Minimum Funding Standards

alters minimum funding rules for single-employer defined benefit pension plans and identifies plan sponsors liable for maintaining pension funding; it also permits funding waivers for plan sponsors under "hardship" circumstances. Under the new funding requirements, plan sponsors are required to make annual contributions equal the minimum funding calculation for plan years beginning after 2007 unless they qualify for hardship relief.

Section 102 Funding Rules for Single Employer Defined Benefit Pension Plans

Outlines the new funding standards and required contributions. It also identifies a new category of plan ("at risk"), and provides special rules for protecting assets of such plans. Minimum required contributions to single-employer defined benefit pension plans after 2007 should be sufficient to permit the plan to achieve its "target normal cost" (the present value of benefits expected to accrue during the plan year).

Section 103 Benefit Limitations Under Single Employer Plans

Bans plan amendments from taking effect during any plan year in which a plan’s "funding target attainment percentage" is less than 80 percent for the plan year.

Section 104 Special Rules for Multiple-Employer Plans of Certain Cooperatives

Delays the imposition of revised interest rate calculations for cooperative multi-employer plans until the earlier of 2017 or the date on which a plan ceases to be a cooperative multi-employer plan.

Section 105 Temporary Relief for Certain PBGC Settlement Plans

Delays the imposition revised interest rate calculations until 2014 for plans which were covered under a PBGC settlement on or before July 26, 2005.

Section 106 Special Rules for Plans of Certain Government Contractors

Delays the imposition revised interest rate calculations for certain eligible government contractors until the earliest of the plan year for which the plan ceases to be an eligible government contractor plan, the effective date of the Cost Accounting Standards Pension Harmonization Rule, or 2011.

Section 107 Technical and Conforming Amendments

Provides technical changes to ERISA to conform these laws to PPA changes.

R.2.b. Subtitle B - Amendments to the Internal Revenue Code of 1986

Section 111 Minimum Funding Standards

Provides conforming changes to the minimum funding standard.

Section 112 Funding Rules for Single Employer Defined Benefit Pension Plans

Provides conforming changes to single employer defined benefit plan funding rules.

Section 113 Benefit Limitations Under Single Employer Plans

Provides conforming changes to single employer plan benefit limitations.

Section 114 Technical and Conforming Amendments

Provides technical and conforming changes to the Code.

Section 115 Modification of Transition Rule to Pension Funding Requirements

Provides conforming changes to modify pension funding transition rules.

Section 116 Restrictions on Funding of Nonqualified Deferred Compensation Plans by Employers Maintaining Underfunded or Terminated Single Employer Plans

Provides conforming changes to restrict the funding of nonqualified deferred compensation plans by employers maintaining underfunded or terminated single-employer plans.

R.3. Title II - Funding Rules for Multi-Employer Defined Benefit Plans

R.3.a. Subtitle A - Amendments to the Employee Retirement Income Security Act of 1974

Section 201 Funding Rules for Multi-Employer Defined Benefit Plans

Creates minimum funding rules for multi-employer defined benefit plans effective for plan years after 2007. It defines how plan assets are to be valued and what constitutes a fully funded plan. These new rules modify amortization periods, reducing the amortization of past service liability and changes in actuarial assumptions resulting from gain and loss experience, from 30 to 15 years. The rules also require actuaries to provide their "best estimate of anticipated experience under the plan," and to periodically review, and change, interest rate assumptions which are not within permissible ranges.

Section 202 Additional Funding Rules for Multi-Employer Plans in Endangered or Critical Status

Mandates the use of additional funding rules for multi-employer defined benefit plans which fall under “endangered” or “critical” definitions. Plans falling under the "endangered" status definition are required to comply with a “funding improvement plan,” plans considered to be "critical" must conform to a “rehabilitation plan.” Plan actuaries are required to certify whether or not a plan is "endangered" or "critical" by the 90th day of each plan year. Plans less than 80% funded are considered to be "endangered" or "seriously endangered;" plans less than 65% funded are considered to be "critical." "Endangered" and "seriously endangered" plans must develop funding improvement plans that will increase the plan's funding percentage over 10 or 15 years, respectively. "Critical" plans must adopt rehabilitation plans that will increase the plan's funding percentage within 10 years. Actuaries must also certify whether or not such plans meet progress requirements under their funding improvement or rehabilitation plans. An actuary's failure to certify the status of a plan (whether or not it is in "endangered" or "critical" status) by the 90th day of each plan year to the Secretary of the Treasury and the plan sponsor is treated as a failure to file the annual report.

Section 203 Measures to Forestall Insolvency of Multi-Employer Plans

Strengthens insolvency protection rules covering multi-employer plans. This provision lengthens the insolvency testing period from 3 to 5 years for plans whose asset value is not at least equal to three times the value of anticipated benefit payments.

Section 204 Withdrawal Liability Reforms

Modifies rules on employers withdrawing from multi-employer pension plans. Employers are subject to withdrawal liability for unfunded vested benefits. This section repeals the limitation on the withdrawal liability of insolvent employers, and updates rules relating withdrawal liability based on the employer's net worth.

Section 205 Prohibition on Retaliation Against Employers Exercising their Rights to Petition the Federal Government

Updates Section 510 ERISA, making it "unlawful for the plan sponsor or any other person to discriminate against any contributing employer for exercising rights under this Act or for giving information or testifying in any inquiry or proceeding relating to this Act before Congress.''

Section 206 Special Rule for Certain Benefits Funded Under an Agreement Approved by the Pension Benefit Guaranty Corporation

Provides special waivers to changes made by sections 201, 202, 211, and 212 of the PPA for benefit increases under plan amendments adopted prior to June 30, 2005, if the multi-employer plan is operating in compliance with an agreement approved by the Pension Benefit Guaranty Corporation prior to that date.

R.3.b. Subtitle B - Amendments to the Internal Revenue Code of 1986

Section 211 Funding Rules for Multi-Employer Defined Benefit Plans

Provides conforming changes to multi-employer funding rules.

Section 212 Additional Funding Rules for Multi-Employer Plans in Endangered or Critical Status

Provides conforming funding rule changes to multi-employer plans which are "endangered" or "critical."

Section 213 Measures to Forestall Insolvency of Multi-Employer Plans

Provides conforming changes to forestall insolvency of multi-employer plans.

Section 214 Exemption from Excise Taxes for Certain Multi-Employer Pension Plans

Provides exemptions from excise taxes imposed under section 4971 of the Internal Revenue Code of 1986 with respect to accumulated funding deficiencies of certain multi-employer plans.

R.3.c. Subtitle C - Sunset of Additional Funding Rules

Section 221 Sunset of Additional Funding Rules

Requires the Secretaries of Labor and the Treasury, and the Executive Director of the PBGC to conduct a study of the effect of the amendments made by this subtitle on the operation and funding status of multi-employer plans, and to report the results of the study, including any recommendations for legislation, to Congress by December 31, 2011.

R.4. Title III - Interest Rate Assumptions

Section 301 Extension of Replacement of 30-year Treasury Rates

Provides for the extension of the substitution of long-term corporate bond interest rates for the 30 year U.S. Treasury bond rate for plan funding and PBGC premiums until 2007.

Section 302 Interest Rate Assumption for Determination of Lump Sum Distributions

Changes the method for calculating lump sum payments to participants or beneficiaries, and requires plans to use specified interest and mortality assumptions.

Section 303 Interest Rate Assumption for Applying Benefit Limitations to Lump Sum Distributions

Specifies interest rates which must be used to calculate benefit limitations on lump sum distributions. Refer also to IRS Pension Protection Act Changes Notice 2007-7.

R.5. Title IV - PBGC Guarantee and Related Provisions

Section 401 PBGC Premiums

Single-employer plans which have unfunded vested benefits must pay PBGC a variable rate premium. This section extends the temporary variable rate premium methodology which was set to expire for the 2005 plan year to 2007, and makes permanent the plan termination premiums enacted by the Deficit Reduction Act of 2005.

Section 402 Special Funding Rules for Certain Plans Maintained by Commercial Airlines

Enacts special alternate funding rules designed to provide financial relief for eligible commercial airline retirement plans.

Section 403 Limitation on PBGC Guarantee of Shutdown and Other Benefits

Limits PBGC liability in cases where plan amendments trigger "shutdown" or other "unpredictable contingent event" increased benefits by permitting the PBGC to phase in the increased benefits over a five year period.

Section 404 Rules Relating to Bankruptcy of Employer

Treats an employer's bankruptcy date as the plan's termination date for use in determining PBGC benefit liabilities.

Section 405 PBGC Premiums for Small Plans

Permits employers with 25 or fewer employees to pay a reduced variable rate premium for each participant equal to $5 per plan participant.

Section 406 Authorization for PBGC to Pay Interest on Premium Overpayment Refunds

Authorizes the PBGC pay interest on premium overpayments which are refunded.

Section 407 Rules for Substantial Owner Benefits in Terminated Plans

This section applies "majority owner" (50% or more owner) rules for "substantial owner" (10% to 49% owner) rules when calculating PBGC benefit limitations. The section also modifies the asset allocation rules relating to "majority owners."

Section 408 Acceleration of PBGC Computation of Benefits Attributable to Recoveries from Employers

Modifies the calculation by which the PBGC shares recoveries from the employer with participants.

Section 409 Treatment of Certain Plans Where Cessation or Change in Membership of a Controlled Group

This section permits the use of a plan’s interest rate to be used in the determination of benefit liabilities where certain changes occur in the plan's membership.

Section 410 Missing Participants

This section requires the PBGC to expand the scope of its missing participant program, which is currently limited to terminating single employer defined benefit plans. Future coverage would include terminating single employer defined contribution plans, and terminating defined benefit and defined contribution multi-employer plans.

Section 411 Director of the Pension Benefit Guaranty Corporation

This section changes the PBGC Director’s position to a presidential appointment subject to Senate confirmation.

Section 412 Inclusion of Information in the PBGC Annual Report

This section requires the PBGC to amend its annual report to detail specific parameters and values, and to make specific comparisons in a summary of its Pension Insurance Modeling System microsimulation model.

R.6. Title V - Disclosure

Section 501 Defined Benefit Plan Funding Notice

This section expands the coverage of summary annual report (SAR) requirements to include single employer plans, and expands SAR content to add specific participant disclosures.

Section 502 Access to Multi-Employer Pension Plan Information

This section requires multi-employer plan administrators to provide specific actuarial and financial information, including an estimation of potential withdrawal liabilities for those obligated to contribute to the plan, upon the written request of participants, beneficiaries, unions, and contributing employers.

Section 503 Additional Annual Reporting Requirements

Expands information covered by the annual Form 5500 report of defined benefit plans. Additional information is required for plans whose liabilities consist of liabilities under 2 or more plans from any preceding year, as well as additional statistical information for multi-employer plans.

Section 504 Electronic Display of Annual Report Information

This section requires the DOL to provide annual Form 5500 report information in electronic form within 90 days after receiving it. Employers (with intranet websites) must also provide this data on their intranet websites.

Section 505 Section 4010 Filings with the PBGC

This section amends the filing requirements of Section 4010(b) of ERISA, substituting a percentage trigger (less than 80% of the plan's funding target) in place of a plan's asset value trigger ($50 million). Plans failing to attain 80% of their funding target at the end of their preceding year must provide the PBGC a non-public report containing actuarial data, potential termination liabilities, and employer financial data.

Section 506 Disclosure of Termination Information to Plan Participants

Requires plans terminating under "distress" or involuntary termination proceedings to provide participants with copies of previously confidential information provided to the PBGC.

Section 507 Notice of Freedom to Divest Employer Securities

Amends Section 101(m) of ERISA by requiring plan administrators to notify participants of their right to divest employer securities 30 days before the first date on which they are eligible to do so. The notification must also explain the importance of diversifying retirement assets.

Section 508 Periodic Pension Benefit Statements

This section directs single and multi-employer plans to regularly furnish benefit statements to participants. Defined benefit plans must furnish the information every three years or upon request. Defined contribution plans must furnish the information annually, unless the plan provides for participant investment direction, in which case it must provide the information quarterly. Failure to provide the information is subject to penalty. Refer also to US Department of Labor Field Assistance Bulletin 2006-03.

Section 509 Notice to Participants or Beneficiaries of Blackout Periods

This section eliminates the requirement that one-person and partner-only plans provide "blackout notices" of periods during which participants are not permitted to self-direct investments.

R.7. Title VI - Investment Advice, Prohibited Transactions, and Fiduciary Rules

The Pension Protection Act of 2006 (PPA) added a number of key exemptions to existing Internal Revenue Code (Code) and Employee Retirement Income Security Act (ERISA) prohibited transaction rules. The new exemptions permit plans and fiduciaries, under specified conditions and requirements: to provide investment advice for a fee; to engage in block trades with previously disqualified persons; to engage in "blind" securities transactions between a plan and a party-in-interest using electronic networks; to enter into transactions with party-in-interest plan service providers; to engage in foreign exchange transactions with trustees and other parties-in-interest; to engage in cross trading with other accounts managed by the same adviser; to correct securities and commodities transactions which inadvertently violated nonfiduciary prohibited transaction rules; and to invest participant directed assets in default investment arrangements.
 
R.7.a. Subtitle A - Investment Advice

Section 601 Exemption for Fiduciary Advisers

Section 601 of Title VI of the Pension Protection Act of 2006 provides prohibited transaction exemptions under ERISA Section 408(b)(14), and Section 4975(d)(17) of the IRC of 1986. Under specific conditions, investment advice for a fee previously prohibited to certain parties-in-interest may be provided to participants and beneficiaries of a defined contribution plan who direct the investment of their accounts under the plan, and to beneficiaries of IRAs, HSAs, Archer MSAs, and Coverdell education savings accounts. If the requirements under the provision are met, the following are exempt from prohibited transaction treatment: (1) the provision of investment advice; (2) an investment transaction (i.e., a sale, acquisition, or holding of a security or other property) pursuant to the advice; and (3) the direct or indirect receipt of fees or other compensation in connection with the provision of the advice or an investment transaction pursuant to the advice. The exemptions apply in connection with investment advice provided by a fiduciary adviser under an "eligible investment advice arrangement." An eligible investment advice arrangement is an arrangement (1) meeting certain requirements (discussed below) and (2) which either (a) provides that any fees (including any commission or compensation) received by the fiduciary adviser for investment advice or with respect to an investment transaction with respect to plan assets do not vary depending on the basis of any investment option selected, or (b) uses a computer model under an investment advice program as described below in connection with the provision of investment advice to a participant or beneficiary. In the case of an eligible investment advice arrangement with respect to a defined contribution plan, the arrangement must be expressly authorized by a plan fiduciary other than (1) the person offering the investment advice program, (2) any person providing investment options under the plan, or (3) any affiliate of (1) or (2). Although employers and plan fiduciaries retain fiduciary responsibility under ERISA for the prudent selection and periodic review of a fiduciary advisers, they are not under the duty to monitor the specific investment advice given by a fiduciary adviser. Moreover, the exemption also provides that fiduciary responsibility provisions of ERISA do not preclude the use of plan assets to pay for reasonable expenses in providing investment advice. Refer also to US Department of Labor Field Assistance Bulletin 2007-01.

Fiduciary Adviser

A “fiduciary adviser” is defined as a person who is a fiduciary of the plan by reason of the provision of investment advice to a participant or beneficiary and who is also: (1) registered as an investment adviser under the Investment Advisers Act of 1940 or under State laws; (2) a bank, a similar financial institution supervised by the United States or a State, or a savings association (as defined under the Federal Deposit Insurance Act), but only if the advice is provided through a trust department that is subject to periodic examination and review by Federal or State banking authorities; (3) an insurance company qualified to do business under State law; (4) registered as a broker or dealer under the Securities Exchange Act of 1934; (5) an affiliate of any of the preceding; or (6) an employee, agent or registered representative of any of the preceding who satisfies the requirements of applicable insurance, banking and securities laws relating to the provision of advice. A person who develops the computer model or markets the investment advice program or computer model is treated as a person who is a plan fiduciary by reason of the provision of investment advice and is treated as a fiduciary adviser, except that the Secretary may prescribe rules under which only one fiduciary adviser may elect treatment as a plan fiduciary. “Affiliate” means an affiliated person as defined under section 2(a)(3) of the Investment Company Act of 1940.

Eligible Investment Advice Arrangement Requirements:

Investment Advice Program Using Computer Model
Arrangements providing investment advice pursuant to a computer model (1) apply generally accepted investment theories that take into account the historic returns of different asset classes over defined periods of time, (2) use relevant information about the participant or beneficiary, (3) use prescribed objective criteria to provide asset allocation portfolios comprised of investment options under the plan, (4) operate in a manner that is not biased in favor of any investment options offered by the fiduciary adviser or related person, and (5) take into account all the investment options under the plan in specifying how a participant's or beneficiary's account should be invested without inappropriate weighting of any investment option. An eligible investment expert must certify, before the model is used and in accordance with rules prescribed by the Secretary of Labor, that the model meets these requirements. The certification must be renewed if there are material changes to the model as determined under regulations. In addition, if a computer model is used, the only investment advice that may be provided is the advice generated by the computer model, and any investment transaction pursuant the advice must occur solely at the direction of the participant or beneficiary. This requirement does not preclude the participant or beneficiary from requesting other investment advice, but only if the request has not been solicited by any person connected with carrying out the investment advice arrangement.

Audit Requirements
With respect to a defined contribution plans, an annual audit of the arrangement for compliance with applicable requirements must be conducted by an independent auditor (unrelated to the person offering investment advice or any person providing investment options under the plan) who has appropriate technical training or experience and proficiency and who so represents in writing. The auditor must issue a report of the audit results to the fiduciary that authorized use of the arrangement. In the case of an eligible investment advice arrangement with respect to IRAs, an audit is required at such times and in such manner as prescribed by the Secretary of Labor.

Notice Requirements
Before providing investment advice, a fiduciary adviser must provide written notice (which may be in electronic form) containing various information to the recipient of the advice, including information relating to: (1) the role of any related party in the development of the investment advice program or the selection of investment options under the plan; (2) past performance and rates of return for each investment option offered under the plan; (3) any fees or other compensation to be received by the fiduciary adviser or affiliate; (4) any material affiliation or contractual relationship of the fiduciary adviser or affiliates in the security or other property involved in the investment transaction; (5) the manner and under what circumstances any participant or beneficiary information will be used or disclosed; (6) the types of services provided by the fiduciary adviser in connection with the provision of investment advice; (7) the adviser’s status as a fiduciary of the plan in connection with the provision of the advice; and (8) the ability of the recipient of the advice separately to arrange for the provision of advice by another adviser that could have no material affiliation with and receive no fees or other compensation in connection with the security or other property. This information must be maintained in accurate form and must be provided to the recipient of the investment advice, without charge, on an annual basis, on request, or in the case of any material change. Any notification must be written in a clear and conspicuous manner, calculated to be understood by the average plan participant, and sufficiently accurate and comprehensive so as to reasonably apprise participants and beneficiaries of the required information. The Secretary is directed to issue a model form for the disclosure of fees and other compensation as required by the provision. The fiduciary adviser must maintain for at least six years any records necessary for determining whether the requirements for the prohibited transaction exemption were met. A prohibited transaction will not be considered to have occurred solely because records were lost or destroyed before the end of six years due to circumstances beyond the adviser’s control.

Other Requirements
In order for the exemption to apply, the following additional requirements must be satisfied: (1) the fiduciary adviser must provide disclosures applicable under securities laws; (2) an investment transaction must occur solely at the direction of the recipient of the advice; (3) compensation received by the fiduciary adviser or affiliates in connection with an investment transaction must be reasonable; and (4) the terms of the investment transaction must be at least as favorable to the plan as an arm's length transaction would be.

R.7.b. Subtitle B - Prohibited Transactions

Section 611(a) Exemption for Block Trading

Section 611(a) of Title VI of the Pension Protection Act of 2006 provides prohibited transaction exemptions under ERISA Section 408(b)(15), and Section 4975(d)(18) of the IRC of 1986. The exemptions provide statutory relief for a purchase or sale of securities or other property (as determined by the Secretary of Labor) between a plan and a disqualified person (other than a fiduciary) involving a block trade if: (1) the transaction involves a block trade; (2) at the time of the transaction, the interest of the plan (together with the interests of any other plans maintained by the same plan sponsor) does not exceed 10 percent of the aggregate size of the block trade; (3) the terms of the transaction, including the price, are at least as favorable to the plan as an arm’s length transaction with an unrelated party; and (4) the compensation associated with the transaction is no greater than the compensation associated with an arm’s length transaction with an unrelated party. For purposes of the provision, a block trade is defined as any trade of at least 10,000 shares or with a market value of at least $200,000 that will be allocated across two or more unrelated client accounts of a fiduciary. Examples of property other than securities that the Secretary of labor may apply the exemption to include futures contracts and currency.

A "disqualified person" is defined in ERISA Section 3(14) (under "party-in-interest") and in IRC Section 4975(e)(2) as:

  1. Any fiduciary (including, but not limited to, any administrator, officer, trustee, or custodian), counsel, or employee of such employee benefit plan;
  2. A person providing services to such plan;
  3. An employer any of whose employees are covered by such plan;
  4. An employee organization any of whose members are covered by such plan;
  5. An owner, direct or indirect, of 50 percent or more of -
    1. The combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of a corporation.
    2. The capital interest or the profits interest of a partnership, or
    3. The beneficial interest of a trust or unincorporated enterprise, which is an employer or an employee organization described in subparagraph (C) or (D);
  6. A relative (as defined in paragraph (15)) of any individual described in subparagraph (A), (B), (C), or (E);
  7. A corporation, partnership, or trust or estate of which (or in which) 50 percent or more of -
    1. The combined voting power of all classes of stock entitled to vote or the total value of shares of all classes of stock of such corporation,
    2. The capital interest or profits interest of such partnership, or
    3. The beneficial interest of such trust or estate, is owned directly or indirectly, or held by persons described in subparagraph (A), (B), (C), (D), or (E);
  8. An employee, officer, director (or an individual having powers or responsibilities similar to those of officers or directors), or a 10 percent or more shareholder directly or indirectly, of a person described in subparagraph (B), (C), (D), (E), or (G), or of the employee benefit plan; or
  9. A 10 percent or more (directly or indirectly in capital or profits) partner or joint venturer of a person described in subparagraph (B), (C), (D), (E), or (G).

A "fiduciary" is defined in ERISA Section 3(21) and in IRC Section 4975(e)(3) as any person who: (1) exercises any authority or control respecting management or disposition of the plan’s assets, (2) renders investment advice for a fee or other compensation with respect to any plan moneys or property, or has the authority or responsibility to do so, or (3) has any discretionary authority or responsibility in the administration of the plan.

Section 611(c) Exemption for Electronic Communications Network

Section 611(c) of Title VI of the Pension Protection Act of 2006 provides prohibited transaction exemptions under ERISA Section 408(b)(16), and Section 4975(d)(19) of the IRC of 1986. Present law does not provide a statutory prohibited transaction exemption for transactions made through an electronic communication network, but such transactions may be permitted if the parties are not known to each other (a “blind” transaction). Section 611(c) provides prohibited transaction exemptions for transactions involving the purchase or sale of securities (or other property as determined under regulations, including futures contracts and currency) between a plan and a party in interest if:

  1. the transaction is executed through an electronic communication network, alternative trading system, or similar execution system or trading venue that is subject to regulation and oversight by: (a) the applicable Federal regulating entity, or (b) a foreign regulatory entity, as the Secretary may determine under regulations;
  2. either: (a) neither the execution system nor the parties to the transaction take into account the identity of the parties in the execution of trades, or (b) the transaction is effected under rules designed to match purchases and sales at the best price available through the execution system in accordance with rules of the SEC or other relevant governmental authority;
  3. the price and compensation associated with the purchase and sale are not greater than an arm’s length transaction with an unrelated party;
  4. if the disqualified person has an ownership interest in the system or venue, the system or venue has been authorized by the plan sponsor or other independent fiduciary for this type of transaction; and
  5. not less than 30 days before the first transaction of this type, a plan fiduciary is provided written notice of the execution of the transaction through the system or venue.

Section 611(d) Exemption for Party-In-Interest Service Providers

Section 611(d) of Title VI of the Pension Protection Act of 2006 provides prohibited transaction exemptions from ERISA Sections 406(b)(1)(A),(B), and (D), under ERISA Section 408(b)(17), and Section 4975(d)(20) of the IRC of 1986. The exemptions provide statutory relief for transactions involving the sale of property, loans, and transfers or use of plan assets between a plan and a party in interest (individuals or entities treated under ERISA as a "party in interest" solely by reason of providing the services in question, or solely by having certain relationships with a service provider). The exemption is conditioned by the plan receiving no less, nor paying more, than "adequate consideration" for the services provided. The term "adequate consideration" (ERISA Section 3(18)) includes, (a) in the case of a security for which there is a generally recognized market, the price of the security prevailing on a national securities exchange registered under the Securities Exchange Act of 1934, or, if the security is not traded on such a national securities exchange, a price not less favorable to the plan than the offering price for the security as established by the current bid and asked prices quoted by persons independent of the issuer and of any disqualified person, and (b) in the case of an asset other than a security, the fair market value of the asset as determined in good faith by a fiduciary or named fiduciaries in accordance with regulations. The exemption does not apply to a fiduciary or affiliate having or exercising investment discretion or investment advice over plan assets.

Section 611(e) Exemption for Foreign Exchange Transactions

Section 611(e) of Title VI of the Pension Protection Act of 2006 provides foreign exchange prohibited transaction exemptions from ERISA Section 406 under ERISA Section 408(b)(18), and Section 4975(d)(21) of the IRC of 1986. Present law does not provide a statutory prohibited transaction exemption for foreign exchange transactions. Section 611(e) provides a prohibited transaction exemption under ERISA and the Code for foreign exchange transactions between a bank, broker-dealer (or an affiliate of either), and a plan in connection with the sale, purchase, or holding of securities or other investment assets (other than a foreign exchange transaction unrelated to any other investment in securities or other investment assets) if:

  1. at the time the foreign exchange transaction is entered into, the terms of the transaction are not less favorable to the plan than terms generally available in comparable arm’s length foreign exchange transactions between unrelated parties, or terms afforded by the bank, broker-dealer (or any affiliate thereof), in comparable arm’s-length foreign exchange transactions involving unrelated parties;
  2. the exchange rate used for a particular foreign exchange transaction does not deviate by more than three percent from the interbank bid and asked rates (at the time of the transaction for transactions of comparable size and maturity) as reported by independent foreign currency exchange services; and
  3. the bank, broker-dealer (and any affiliate of either), does not have investment discretion or provide investment advice with respect to the transaction.

Section 611(g) Exemption for Cross Trading

Section 611(g) of Title VI of the Pension Protection Act of 2006 provides prohibited transaction exemptions from ERISA Sections 406(b)(1)(A), and 406(b)(2), under ERISA Section 408(b)(19), and Section 4975(d)(22) of the IRC of 1986. The provision provides prohibited transaction exemptions under ERISA and the Code for transactions involving the purchase and sale of a security between a plan (generally a plan whose assets aggregate $100 million or greater) and any other account managed by the same investment manager if the following requirements are met:

  1. the transaction is a purchase or sale (for no consideration other than cash payment) against prompt delivery of a security (for which market quotations are readily available);
  2. the transaction is effected at the independent current market price of the security;
  3. no brokerage commission fee (except for customary transfer fees which must be disclosed) or other remuneration is paid in connection with the transaction;
  4. a fiduciary (other than the investment manager engaging in the cross trades or any affiliate) for each plan participating in the transaction authorizes in advance of any cross-trades (in a document separate from any other written agreement) the investment manager to engage in cross trades at the investment manager’s discretion, after the fiduciary has received disclosure: (a) regarding the conditions under which cross trades may take place (in a disclosure separate from any other agreement or disclosure involving the asset management relationship), (b) which includes the investment manager's written policies and procedures;
  5. each plan participating in the transaction has assets of at least $100,000,000, except that, if the assets of a plan are invested in a master trust containing the assets of plans maintained by employers in the same controlled group, the master trust has assets of at least $100,000,000;
  6. the investment manager provides to the plan fiduciary who has authorized cross trading a quarterly report detailing all cross trades executed by the investment manager in which the plan participated during such quarter, including the following information as applicable: (a) the identity of each security bought or sold, (b) the number of shares or units traded, (c) the parties involved in the cross trade, and (d) the trade price and the method used to establish the trade price;
  7. the investment manager does not base its fee schedule on the plan’s consent to cross trading and no other service (other than the investment opportunities and cost savings available through a cross trade) is conditioned on the plan’s consent to cross trading;
  8. the investment manager has adopted, and cross trades are effected in accordance with, written cross trading policies and procedures that are fair and equitable to all accounts participating in the cross-trading program, including (a) a description of the manager’s pricing policies and procedures, and (b) the manager’s policies and procedures for allocating cross trades in an objective manner among accounts participating in the cross-trading program; and
  9. the investment manager has designated an individual responsible for (a) periodically reviewing purchases and sales to ensure compliance with the written policies and procedures and, (b) following such review, the individual must issue an annual written report no later than 90 days following the period to which it relates, signed under penalty of perjury, to the plan fiduciary who authorized the cross trading, (i) describing the steps performed during the course of the review, (ii) the level of compliance, and (iii) any specific instances of noncompliance. The written report must also notify the plan fiduciary of the plan’s right to terminate participation in the investment manager’s cross-trading program at any time.

The Secretary of Labor, after consultation with the Securities and Exchange Commission, is directed to issue regulations regarding the content of policies and procedures required to be adopted by an investment manager under the requirements for the exemption within 180 days from date of enactment (August 17, 2006).

Refer also to US Department of Labor Cross Trading Statutory Exemption.

Section 612 Exemption for Certain Corrected Party-in-Interest Transactions Involving Securities and Commodities

Section 612 of Title VI of the Pension Protection Act of 2006 provides prohibited transaction exemptions from ERISA Section 406(a) under ERISA Section 408(b)(20), and Section 4975(d)(23) of the IRC of 1986. ERISA and the Code prohibit certain transactions between an employer-sponsored retirement plan and a disqualified person (referred to as a “party in interest” under ERISA). For purposes of these rules, the “amount involved” generally means the greater of (1) the amount of money and the fair market value of the other property given, or (2) the amount of money and the fair market value of other property received by the plan. The terms “correction” and “correct” mean, with respect to a prohibited transaction, undoing the transaction to the extent possible (but in any case placing the plan in a financial position not worse than the position in which it would be if the disqualified person were acting under the highest fiduciary standards). For purposes of the prohibited transaction rules of the Code and ERISA, a transaction involving the sale of securities is considered to occur when the transaction is settled (the actual change in ownership of the securities). Under current practice, securities transactions are commonly settled 3 days after the agreement to sell is made. Present law does not provide a statutory prohibited transaction exemption that is based solely on correction of the transaction. Section 612 provides a prohibited transaction exemption under ERISA and the Code for a transaction in connection with the acquisition, holding, or disposition of any security or commodity if the transaction is corrected within a certain period, generally within 14 days of the date the disqualified person (or other person knowingly participating in the transaction) discovers, or reasonably should have discovered, the transaction was a prohibited transaction. For this purpose, the term “correct” means, with respect to a transaction:

  1. to undo the transaction to the extent possible and in any case to make good to the plan or affected account any losses resulting from the transaction; and
  2. to restore to the plan or affected account any profits made through the use of assets of the plan.

If the exemption applies, no excise tax may be assessed with the transaction, any tax assessed may be abated, and any tax collected may be credited or refunded as a tax overpayment. The exemption does not apply to any transaction between a plan and a plan sponsor or its affiliates that involves the acquisition or sale of an employer security or the acquisition, sale, or lease of employer real property. In addition, in the case of a disqualified person (or other person knowingly participating in the transaction), the exemption does not apply if, at the time of the transaction, the person knew (or reasonably should have known) that the transaction would constitute a prohibited transaction.

R.7.c. Subtitle C - Fiduciary and Other Rules

Section 621 Inapplicability of Relief from Fiduciary Liability During Suspension of Ability of Participant or Beneficiary to Direct Investments

This section removes a plan fiduciary's protection during blackout periods when participants cannot self-direct investments unless the blackout period relates to a qualified change in investment options.

Section 622 Increase in Maximum Bond Amount

This section increases fiduciary bonding requirements from $500,000 to $1 million for plans which hold employer securities.

Section 623 Increase in Penalties for Coercive Interference with Exercise of ERISA Rights

This section increases penalties for coercive interference with ERISA rights a $100,000 fine and three years in prison.

Section 624 Default Investments Where Plan Participants Fail to Exercise Investment Options

Section 624 of Title VI of the Pension Protection Act of 2006 expands protections to fiduciaries of plans that provide for participant investment direction where a participant fails to affirmatively elect an investment option under the plan. It adds a new subsection to the fiduciary duties standards of ERISA (Section 404(c)(5)), which treats participants as exercising investment control over their account assets if the assets are invested in a default arrangement in accordance with Department of Labor regulations. On October 24, 2007 the DOL issued a final rule which would add subsection 2550.404c–5 (305KB PDF file - PDF Help) to 29 CFR Part 2550. The regulation provides guidance on the appropriateness of investments designated as default investments under the default investment arrangement, including guidance regarding mixes of default investments and asset classes which the Secretary of Labor considers consistent with long-term capital appreciation or long-term capital preservation, and the designation of other default investments. The proposed rule requires notification of a participant’s rights and obligations under the arrangement. Plan administrators are required to give each participant notice of their rights and obligations under the arrangement within a reasonable period before the plan year begins. The notice must include an explanation of a participant’s right to exercise investment control over the participant's assets in the plan. The participant must have a reasonable period of time, after receipt of the notice and before the assets are first invested, to make an investment election. The notice must also explain how the participant's assets will be invested in the absence of any investment election.

Section 625 Clarification of Fiduciary Rules

Requires the Secretary of Labor to issue regulations by August 2007 which clarify the selection of an annuity contract as an optional form of distribution to a participant or beneficiary from individual account plans.

R.8. Title VII - Benefit Accrual Standards

Section 701 Benefit Accrual Standards

This section enacts rules for testing defined benefit plans which are converted to hybrid plans for age discrimination under the Code, ERISA, and the Age Discrimination in Employment Act (ADEA). “Wearaway” of participant benefits at conversion is prohibited. (“Wearaway” is a transitional device offered employees with long service when traditional defined benefit pension plans are converted to cash balance plans. In the past, "wearaway" has provided employees the option of receiving the greater of their frozen benefit under the phased out pension plan, or their total benefit under a cash balance plan. Employees near early retirement age may accrue little or nothing for a prolonged period under a cash balance plan until the phased out plan benefit is worn away. This is because the value of the traditional pension plan benefit may be greater than future accruals under cash balance plans.) Age discrimination prohibitions will not be treated as violated upon conversion if a participant's accrued benefit is equal to or greater than that of any "similarly situated younger individual." Benefit accrual standards apply to plan conversion amendments beginning June 29, 2005. IRS Revenue Ruling Notice 2007–6 provides transitional guidance on the requirements of sections 411(a)(13) and 411(b)(5) of the Code as added by Section 701(b) of the Pension Protection Act of 2006. Refer also to IRS Revenue Ruling Notice 2007-06.

Section 702 Regulations Relating to Mergers and Acquisitions

This section requires the Secretary of the Treasury to issue regulations for the application of this title "in cases where the conversion of a plan to an applicable defined benefit plan is made with respect to a group of employees who become employees by reason of a merger, acquisition, or similar transaction."

R.9. Title VIII - Pension Related Revenue Provisions

R.9.a. Subtitle A - Deduction Limitations

Section 801 Increase in Deduction Limit for Single Employer Plans

Increases the maximum deductible amount for single employer plan contributions equal to the cost of benefits accrued plus the amount needed to meet the funding target. Employers may also contribute a cushion for the plan year equal to 50% of the funding target plus "the amount by which the funding target for the plan year would increase if the plan were to take into account ...increases in compensation which are expected to occur in succeeding plan years."

Section 802 Deduction Limits for Multi-Employer Plans

Increases the maximum deductible amount for multi-employer plan contributions equal to "the excess (if any) of 140 percent of the current liability of the plan...over the value of the plan's assets."

Section 803 Updating Deduction Rules for Combination of Plans

Raises the combined maximum deduction limit for employers sponsoring both defined benefit and defined contribution plans.

R.9.b. Subtitle B - Certain Pension Provisions Made Permanent

Section 811 Pensions and Individual Retirement Arrangement Provisions of EGTRRA of 2001 Made Permanent

Makes permanent the pension and IRA changes brought about by subtitles A through F of Title VI of the Economic Growth and Tax Relief Reconciliation Act of 2001. These include increased IRA, Defined Benefit Plan, and Defined Contribution Plan limits; Catch-up contributions for individuals age 50 and over; automatic rollovers of certain distribtutions into IRAs; and deemed IRAs under qualified employer plans, among others. Refer also to US Department of Labor Auto IRA Rollover Safe Harbor Rule 2550.404a-2.

Section 812 Saver's Credit

Makes the Saver's Credit under Section 25B of the Internal Revenue Code of 1986 permanent.

R.9.c. Subtitle C - Improvements in Portability, Distribution and Contribution Rules

Section 821 Clarifications Regarding Purchase of Permissive Service Credit

Amends the Code to permit participants of state and local retirement plans to purchase of service credits from prior government employers. It also allows trustee to trustee transfers from 403(b) or 457(e) plans to purchase service credits.

Section 822 Allow Rollover of After-Tax Amounts in Annuity Contracts

Permits an individual to roll over after-tax amounts in 403(b) annuity contracts to a qualified plan.

Section 823 Clarification of Minimum Distribution Rules for Governmental Plans

Requires the Treasury to issue regulations providing governmental plans relief from minimum distribution (age 70 1/2) rules.

Section 824 Allow Direct Rollovers from Retirement Plans to Roth IRAs

Beginning in 2007, this section permits individuals with adjusted gross income under $100,000 to roll over money from qualified defined benefit and defined contribution plans, 403(b) annuity, or 457 plan to a Roth IRA. This eliminates the previous requirement of first rolling money into a traditional IRA, before performing a second rollover into a Roth IRA. The money rolled over remains includible in gross income and subject to tax, but it is exempt from the 10% early withdrawal penalty.

Section 825 Eligibility for Participation in Retirement Plans

This section permits individuals who received distributions from a section 457(b) plan of the Code prior to the amendments of the Small Business Job Protection Act of 1996 to participate in an eligible deferred compensation plan under section 457.

Section 826 Modifications of Rules Governing Hardships and Unforeseen Financial Emergencies

This section directs the Secretary of the Treasury to issue regulations to modify the hardship regulations which permit a hardship or unforeseeable financial emergency distribution from section 401(k), section 403(b), and section 457(b) plans. Refer also to IRS Pension Protection Act Changes Notice 2007-7.

Section 827 Penalty-Free Withdrawals from Retirement Plans for Individuals Called to Active Duty for at Least 179 Days

This section amends Code section 72(t) to eliminate the 10% early withdrawal penalty for "qualified reservist distributions" (for reservists called to active duty for more than 179 days between September 11, 2001 and December 31, 2007). The distribution must be made from from elective deferrals under a 401(k) or 403(b) plan, or from a traditional or Roth IRA during the active duty period. The distribution may be contributed into an IRA outside the maximum contribution limits within two years after the active duty ends.

Section 828 Waiver of 10 Percent Early Withdrawal Penalty Tax on Certain Distributions of Pension Plans for Public Safety Employees

This section amends Code section 72(t) to eliminate the 10% premature distribution penalty for public safety employees (police, firefighter or EMT) in governmental defined benefit plans who retire after age 50. Refer also to IRS Pension Protection Act Changes Notice 2007-7.

Section 829 Allow Rollovers by Nonspouse Beneficiaries of Certain Retirement Plan Distributions

This section amends the Code to permit nonspouse beneficiaries to roll over distributions from qualified retirement plans, section 403(b) and 457(b) governmental plans to an IRA. The IRA is an "inherited" individual retirement account, subject to minimum distribution rules applicable to IRA beneficiaries, rather than the five-year rule for distributions from a qualified plan. Refer also to IRS Pension Protection Act Changes Notice 2007-7, and DOL Amendments to Safe Harbor for Distributions From Terminated Individual Account Plans and Termination of Abandoned Individual Account Plans.

Section 830 Direct Payment of Tax Refunds to Individual Retirement Plans

This section requires the IRS to permit taxpayers to direct deposit tax refunds into the taxpayer’s IRA.

Section 831 Allowance of Additional IRA Payments in Certain Bankruptcy Cases

This section permits individuals aged 50 and over who worked for a bankrupt employer "subject to an indictment or conviction resulting from business transactions related to such case," and whose employer had a least a 50% match in the form of employer stock in its 401(k) plan, to make additional IRA catch-up contributions of up to three times the otherwise applicable amount. The contributions can be made for years 2007, 2008, and 2009.

Section 832 Determination of Average Compensation for Section 415 Limits

This section modifies the compensation test under section 415(b)(3) of the Code to permit compensation earned while working for the employer, not only while a plan participant to be counted towards defined benefit plan benefit limits.

Section 833 Inflation Indexing of Gross Income Limitations on Certain Retirement Savings Incentives

This section provides for indexing adjusted gross income levels for the Saver’s Credit by modifying section 25B of the Code to index gross income limits for claiming the Saver's Credit. It also amends sections 219(g) and 408A(c)(3) of the Code to provide inflation adjustments (in $1,000 increments) to the income limits for determining eligibility for traditional IRA and Roth IRA, respectively.

R.9.d. Subtitle D - Health and Medical Benefits

Section 841 Use of Excess Pension Assets for Future Retiree Health Benefits and Collectively Bargained Retiree Health Benefits

This section lowers the required "excess assets" threshold (from 125% to 120%) to permit the transfer of assets from single employer defined benefit plans to retiree medical accounts covered by the same plan to defray liabilities of future retiree medical costs. During the transfer period, the defined benefit plan must be kept at the minimum funding level.

Section 842 Transfer of Excess Pension Assets to Multi-Employer Health Plan

This section applies the right of single employer plans to transfer "excess assets" to a health plan to multi-employer pension plans. An identical 120% "excess assets" threshold is needed to permit the transfer. During the transfer period, the defined benefit plan must be kept at the minimum funding level.

Section 843 Allowance of Reserve for Medical Benefits of Plans Sponsored by Bona Fide Associations

This section amends 419A(c) of the Code to permit a plan maintained by "bona fide associations" (as defined in section 2791(d)(3) of the Public Health Service Act) to add reserves to the plan of up to 35% of qualified direct annual costs for medical benefits (other than post-retirement medical benefits).

Section 844 Treatment of Annuity and Life Insurance Contracts with a Long-Term Care Insurance Feature

This section permits annuity contracts to offer long-term care (LTC) contracts, and provides special tax treatment for the LTC component of contract. Among these is the ability to use the cash value of the contract to pay for the LTC benefit.

Section 845 Distributions from Governmental Retirement Plans for Health and Long-Term Care Insurance for Public Safety Officers

This section amends section 402 of the Code to allow eligible retired "public safety officers" (as defined by section 1204(9)(A) of the Omnibus Crime Control and Safe Streets Act of 1968) to elect to exclude up to $3,000 of their retirement benefits from federal gross income if it is applied toward the cost of health insurance or long term care insurance premiums. Refer also to IRS Pension Protection Act Changes Notice 2007-7.

R.9.e. Subtitle E - United States Tax Court Modernization

Section 851 Cost-of-Living Adjustments for Tax Court Judicial Survivor Annuities

This section conforms the method used to adjust annuities paid to survivors of Tax Court judges to the method used to adjust the cost-of-living increases paid under the Civil Service Retirement System.

Section 852 Cost of Life Insurance Coverage for Tax Court Judges Age 65 or Over

This section directs the Tax Court to pay increases in employee premiums under the Federal Employee Group Life Insurance program on behalf of Tax Court judges age 65 or over.

Section 853 Participation of Tax Court Judges in the Thrift Savings Plan

his section permits Tax Court judges to participate in the Federal Thrift Savings Plan.

Section 854 Annuities to Surviving Spouses and Dependent Children of Special Trial Judges of the Tax Court

This section permits special trial judges of the Tax Court to participate in the Tax Court judges survival annuity plan.

Section 855 Jurisdiction of Tax Court Over Collection Due Process Cases

This section transfers the jurisdiction for the review of taxpayer tax liability from the District Courts to the Tax Court.

Section 856 Provisions for Recall

This section permits the Chief Judge to recall retired special trial judges to active service for up to 90 days annually.

Section 857 Authority for Special Trial Judges to Hear and Decide Certain Employment Status Cases

This section authorizes the Tax Court to permit special trial judges to render employment decisions under section 7436(c) of the Code.

Section 858 Confirmation of Authority of Tax Court to Apply Doctrine of Equitable Recoupment

This section confirms the statutory held by the Tax Court to apply equitable recoupment under Section 6214(b) of the Code "to same extent that it is available in civil tax cases before the district courts of the United States and the United States Court of Federal Claims.''

Section 859 Tax Court Filing Fee in All Cases Commenced by Filing Petition

This section confirms that the Tax Court is authorized under Section 7451 of the Code to impose a filing fee for tax court petitions.

Section 860 Expanded Use of Tax Court Practice Fee for Pro Se Taxpayers

This section authorizes the Tax Court to use fees to provide services which assist pro se taxpayers taxpayers appearing before the Court.

R.9.f. Subtitle F - Other Provisions

Section 861 Extension to All Governmental Plans of Current Moratorium on Application of Certain Nondiscrimination Rules Applicable to State and Local Plans

This section extends the moratorium on the IRS disqualifying state and local governmental plans on the basis of violating nondiscrimination rules using by as a comparison the nondiscriminatory provisions of federal plans.

Section 862 Elimination of Aggregate Limit for Usage of Excess Funds from Black Lung Disability Trusts

This section eliminates the limit on transfers coal employers are permitted to make from black lung disability trusts to pay for accident and health benefits or premiums.

Section 863 Treatment of Death Benefits from Corporate-Owned Life Insurance

This section requires proceeds from corporate owned life insurance to be treated as income unless the insured was an employee within 12 months of death, or the insured was a “highly compensated employee” (employees owning more than 5%, directors, and employees in the top 35% salary category). The sole exception involves proceeds paid to an insured’s beneficiary and which are used to buy back an equity interest owned at the time of death.

Section 864 Treatment of Test Room Supervisors and Proctors who Assist in the Administration of College Entrance and Placement Exams

This section amends Section 530 of the Revenue Reconciliation Act of 1978 to treat test room supervisors and proctors who assist in the administration of college entrance examinations as independent contractors.

Section 865 Grandfather Rule for Church Plans Which Self-Annuitize

This section allows qualified church plans (under section 401(a) of the Code) which self-annuitize distributions to avoid minimum distribution violations if the plans otherwise comply with the requirements of section 403(b)(9) of the Code.

Section 866 Exemption for Income from Leveraged Real Estate Held by Church Plans

This section exempts church annuity plans from the imposition of unrelated business income tax on leveraged real estate investments.

Section 867 Church Plan Rule

This section eliminates the maximum benefit that participants can receive from defined benefit plans under the Code for non-highly compensated employees covered by church plans.

Section 868 Gratuitous Transfer for Benefits of Employees

This section specifies that the value used under section 664(g)(3) of the Code when allocating gratuitous transfers to an ESOP is to be equal to the "fair market value of securities ... allocated..."

R.10. Title IX - Increase in Pension Plan Diversification and Participation

Section 901 Defined Contribution Plans Required to Provide Employees with Freedom to Invest Their Plan Assets

Amends Section 401(a) of the Code by requiring qualified pension, profit-sharing, and stock bonus plans which invest in "publicly traded employer securities" to offer plan participants at least 3 investment options, other than employer securities, to "direct the proceeds from the divestment of employer securities...each of which is diversified and has materially different risk and return characteristics." Participants must be given the opportunity to divest and reinvest employer securities at least quarterly. Existing plans may phase in diversification of employer securities over a three year period. However, participants aged 55 or over who have completed at least 3 years of service are exempted from the three year phase in period. The new diversification requirements are not applicable to ESOPs which do not provide for elective, employee, or matching contributions, nor do they apply to "one participant retirement plans."

Section 902 Increasing Participation Through Automatic Contribution Arrangements

Amends Section 401(k) of the code to provide for "qualified automatic contribution arrangements" designed to automatically enroll employees in a retirement plan unless they affirmatively elect not to participate in the plan. At a minimum, these plans must provide for (a) automatic deferral of compensation, (b) nonelective contributions and a two year vesting period, and (c) an annual notice of participant rights. Investments in these plans qualify for fiduciary relief under a Department of Labor Rule (Section 2550.404c–5 305KB PDF file - PDF Help). The proposed rule provides fiduciary relief for investments in "qualified default investment alternatives" in the absence of the participant's investment direction.

Section 903 Treatment of Eligible Combined Defined Benefit Plans and Qualified Cash or Deferred Arrangements

Adds section 414(x) to the Code creating new "Combined Defined Benefit Plans" for employers with 500 or fewer employees. The combined plan is governed under one document which provides for both a defined benefit plan, and a deferred contribution plan with an automatic enrollment feature. Assets of the plans are held in a single trust, but must be identifiable and allocated to each of the defined benefit and defined contribution portions of the plan.

Section 904 Faster Vesting of Employer Nonelective Contributions

Amends Section 411(a) of the Code to accelerate the vesting period on employer contributions to defined contribution plans. Plans must either provide for 100 percent vesting after an employee attains three years of service, or incremental vesting within a two to six year period as defined. In the case of stock ownership plans which had loans outstanding as of September 26, 2005, these changes do apply before the earlier of the date on which the loan is fully repaid, or the date on which the loan was scheduled to be fully repaid. Refer also to IRS Pension Protection Act Changes Notice 2007-7.

Section 905 Distributions During Working Retirement

Amends sections 401(a) of the Code and 3(2)(A) of ERISA to permit in-service distributions from defined benefit plans to individuals age 62 and over. While this amendment permits defined benefit plans to do so, it does not require them provide this form of benefit.

Section 906 Treatment of Certain Pension Plans of Indian Tribal Governments

Amends Sections 414(d) of the Code and 3(32) of ERISA to treat plans maintained by Indian tribal governments as governmental plans. It also applies the special benefit limitations under Code Section 415(b)(2)(H), the pick up contributions under Code Section 414(h), and the special benefit limitations under Code Section 415(b)(10), each of which is applicable to police and firefighters of a state or political subdivision, to such plans.

R.11. Title X - Spousal Pension Protection

Section 1001 Regulations on Time and Order of Issuance of Domestic Relations Orders

This section requires the Secretary of Labor to issue regulations under Sections 414(p) of the Code and 206(d)(3) of ERISA. The regulations will clarify that a domestic relations order "shall not fail to be treated as a qualified domestic relations order solely because (A) the order is issued after, or revises, another domestic relations order or qualified domestic relations order; or (B) of the time at which it is issued..."

The DOL published an Interim Final Rule Relating to Time and Order of Issuance of Domestic Relations Orders on March 6, 2007, it is effective April 7, 2007. The rule provides guidance on the timing and order of domestic relations orders under section 206(d)(3) of ERISA.

Section 1002 Entitlement of Divorced Spouses to Railroad Retirement Annuities Independent of Actual Entitlement of Employee

This section makes the entitlement to railroad retirement annuities of a divorced spouse independent to that of the employee.

Section 1003 Extension of Tier II Railroad Retirement Benefits to Surviving Former Spouses Pursuant to Divorce Agreements

This section ensures that a surviving spouse’s railroad retirement benefit annuity, which is received pursuant to a "divorce decree, annulment, or legal separation or the terms of any court-approved property settlement incident to any such court decree, shall not be terminated upon the death of the...(retired employee)...unless such termination is otherwise required by the terms of such court decree.''

Section 1004 Requirement for Additional Survivor Annuity Option

This section modifies Section 417(a)(1)(A) of the Code to require plans which offer a "qualified optional survivor annuity" to provide as an option a joint and survivor benefit which is equal to at least 75% of the joint benefit.

R.12. Title XI - Administrative Provisions

Section 1101 Employee Plans Compliance Resolution System

This section requires the Secretary of the Treasury to update and improve the "Employee Plans Compliance Resolution System."

Section 1102 Notice and Consent Period Regarding Distributions

This section revises the consent period for joint and survivor notices from 90 days to 180 days. Refer also to IRS Pension Protection Act Changes Notice 2007-7.

Section 1103 Reporting Simplification

This section requires the Secretary of the Treasury to eliminate the annual Form 5500 reporting requirements for one person plans holding less than $250,000 in assets, and requires the Secretaries of Labor and Treasury to simplify annual reporting requirements for plans with fewer than 25 participants.

Section 1104 Voluntary Early Retirement Incentive and Employment Retention Plans Maintained by Local Educational Agencies and Other Entities

This section amends Sections 457(e)(11) of the Code, 4(l)(1) of the Age Discrimination in Employment Act of 1967 (ADEA), and 3(2)(B) of ERISA to treat payments made from certain voluntary early retirement incentive plans (VERIPs), employment retention plans of educational agencies, and nongovernmental VERIPs "as a bona fide severance pay plan ...payments or supplements to the extent such payments or supplements could otherwise have been provided under such defined benefit plan." The effect of the changes is to defer taxation of the payments.

Section 1105 No Reduction in Unemployment Compensation as a Result of Pension Rollovers

Amends Section 3304(a) of the Code relating to State unemployment laws. The amendment states "Compensation shall not be reduced under paragraph (15) for any pension, retirement or retired pay, annuity, or similar payment which is not includible in gross income of the individual for the taxable year in which paid because it was part of a rollover distribution." The effect of the change is to prohibit the reduction of unemployment benefits on the basis of pension distributions which were rolled over.

Section 1106 Revocation of Election Relating to Treatment as Multi-Employer Plan

This section permits certain pre-ERISA plans to elect to be treated as multi-employer plans.

Section 1107 Provisions Relating to Plan Amendments

This section insulates plans from violating plan amendment requirements with respect to any amendments made to comply with the provisions of the Pension Protection Act of 2006.

R.13. Title XII - Provisions Relating to Exempt Organizations

Section 1201 Tax-Free Distributions from Individual Retirement Plans for Charitable Purposes

This section amends Section 408(d) of ERISA by adding subsection (8), which provides that distributions from an IRA after an individual attains the age of 70 1/2 made directly by a trustee to organizations described in Section 170(b)(1)(A) of the Code is excluded from gross income. The exclusion is only available to the extent that the distribution would otherwise have been includible in gross income, and only if the contribution would otherwise qualify for a charitable contribution deduction under Section 170 of the Code. This provision expires on December 31, 2007 and, therefore, the exclusions are only available for plan years 2006 and 2007 (unless extended by Congress). The exclusions may not exceed $100,000 in either year. Refer also to IRS Pension Protection Act Changes Notice 2007-7.

No other sections under this title pertain to employee benefit plans.

R.14. Title XIII - Other Provisions

Section 1304 Qualified Tuition Programs

This section makes tax deferred "529" tuition programs permanent.

No other sections under this title pertain to employee benefit plans.

R.15. Title XIV - Tariff Provisions

No sections under this title pertain to employee benefit plans.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 
Last Updated 04/02/2008

supervision@fdic.gov