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September 23, 2009 |
Schiff Hardin Employee Benefits and Executive Compensation Group Update The Pension Protection Act of 2006 ("PPA") made several mandatory and permissive changes to the rules applicable to qualified defined contribution and defined benefit pension plans. Administrative compliance is currently required for the PPA's mandatory changes, which went into effect in 2007 and 2008. Compliance with the permissive changes is required to the extent affirmatively approved by the plan administrator. PPA mandatory changes include changes to the vesting schedule for employer contributions in defined contribution plans, changes to the actuarial assumptions used to calculate lump sum distributions and the maximum benefit limitations in defined benefit plans, the requirement that defined contribution plans allow participants to diversify publicly traded employer securities from their accounts after three years, and the requirement that all plans permit nonspouse beneficiaries to roll over eligible distributions to an IRA or individual retirement annuity. PPA permissive changes include a safe harbor from IRS discrimination testing for certain automatic contribution arrangements in defined contribution plans, a safe harbor from age discrimination claims for cash balance plans that pay out account balances, the extension of the definition of a safe harbor hardship distribution from a defined contribution plan to include distributions for the benefit of nonspouse beneficiaries, special in-service distributions from defined contribution plans for military reservists called to active service, and the extension of the period to provide certain notices in all plans to plan participants. Generally, all calendar year plans must be amended and updated to reflect the applicable PPA provisions by the end of 2009. (Non-calendar year plans must be amended and updated by the end of the first plan year beginning after January 1, 2009.) Plan sponsors should start planning now for their year-end amendments, taking into account any required board or committee involvement to review and execute documents in a timely manner. The consequences of failing to timely amend a plan for PPA can range anywhere from monetary penalties to revocation of tax-qualified status in egregious cases. Please contact your Schiff Hardin LLP attorney or any of the individual attorneys listed in this document to prepare a timeline for amending your plans for the PPA. RECENT PUBLICATIONS "Department of Health and Human Services Publishes Final Rule Regarding HIPAA Breach Notification Requirement," Employee Benefits and Executive Compensation Update (September 11, 2009) ABOUT SCHIFF HARDIN LLP Schiff Hardin's Employee Benefits and Executive Compensation Group works with clients to determine which retirement and health/welfare benefits plans best suit their needs, and assists in the design and implementation of all types of stock-based plans, deferred compensation and employment arrangements. Our counseling extends to analyzing benefit formulas, investment alternatives and procedures, and issues of securities law and fiduciary concerns. For more information, please feel free to contact us. |