Reminders for Qualified Retirement Plans of Imminent PPA ’06 Compliance Deadlines

This Compliance Alert reminds sponsors of qualified plans about imminent deadlines for compliance with certain provisions of the Pension Protection Act of 2006 (PPA ’06). Most significantly, by December 31, 2009, sponsors of calendar-year plans must adopt amendments required by PPA ’06.

Moreover, sponsors of defined benefit plans that chose to provide PPA ’06-required individual benefit statements to all active, vested participants every three years (instead of providing an annual notice of availability upon request) are reminded that the first of these periodic statements must be provided for the 2009 plan year,1 subject to a delayed effective date for collectively bargained participants.2
Required Amendments

Under PPA ’06, plan sponsors have until the last day of the 2009 plan year3 to retroactively amend their plans for PPA ’06-required and related changes. This amendment deadline applies even if the deadline for submitting a plan to the Internal Revenue Service (IRS) for a determination letter is later. For example, a calendar-year plan submitting a request for a determination letter in Cycle D must be amended for PPA ’06 by December 31, 2009 but does not have to be submitted to the IRS for a determination letter until January 31, 2010.4

If the plans are properly amended by the last day of the 2009 plan year, plan sponsors will have relief from the rules requiring operation in accordance with plan terms and forbidding benefit cutbacks. The conditions for the relief are the standard conditions: the plans must have been operated in accordance with the law since the effective date of the statutory change or the change in plan policy; the terms of the amendment must be consistent with those operations; and the amendment must be retroactive to that effective date.

PPA ’06-required amendments include amendments to provide for:

* For both defined benefit and defined contribution plans, the Qualified Optional Survivor Annuity (QOSA) payment form (for all defined benefit plans and for defined contribution plans subject to the Qualified Joint and Survivor Annuity Rules), and the expanded rollover rules – including an amendment for non-spouse beneficiary rollovers if a plan has been permitting such rollovers for any period beginning on or after January 1, 2007,
* For defined benefit plans, the applicable interest rate and mortality table to be used for converting annuity benefits to lump sums and similar payment forms, and, for single employer plans, the benefit restrictions that will have to take effect under Internal Revenue Code §436 if the plan's funding dips below certain levels, and
* For defined contribution plans generally, faster vesting in employer non-elective contributions (if any), and for §401(k) plans, various new requirements related to certain features such as hardship distributions and certain types of automatic enrollment.

Periodic Benefit Statements for Defined Benefit Plans

PPA ’06 requires defined benefit plans to give all active, vested participants an individual benefit statement every three years, or, alternatively to give them a notice every year offering to provide such a statement at their request. The only guidance that has been issued so far with respect to this statement as it applies to defined benefit plans is the Department of Labor’s Field Assistance Bulletin (FAB) No. 2006-03 released on December 20, 2006.5 The FAB clarifies that 2009 is the first plan year for which plans providing the three-year benefit statement must comply, but does not give a specific deadline for providing the statement.6

Defined benefit plan sponsors should be determining how they intend to comply with this requirement, particularly in the event no additional guidance is provided. In addition to designing systems for retrieving the needed data, computing each participant’s accrued benefit, double-checking the calculations and distributing the information efficiently, issues to consider include the following:

* Whether they want to provide these statements at the same time to participants covered by collective bargaining agreements, for whom the effective date may be delayed, and
* When to provide the statement.

In the absence of additional guidance, plan sponsors will have to look to their attorneys for advice on a reasonable good-faith interpretation of what the law requires.

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As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for authoritative advice on compliance with PPA ’06. The Segal Company can be retained to work with plan sponsors and their attorneys on amendments and required participant communications.

1
The periodic benefit statement requirement is generally effective for plan years beginning after December 31, 2006. As discussed later in this Compliance Alert, the 2009 plan year (i.e., the third plan year beginning after December 31, 2006) is the first year for which a three-year statement is due. (Click on the following text to return to the Compliance Alert.)
2
The collective bargaining effective date applies to “benefits pursuant to and individuals covered by” collective bargaining agreements in effect on August 17, 2006 (the date of enactment of PPA ’06) and replaces “December 31, 2006” with the date that is the earlier of: (a) the later of (i) December 31, 2007 or (ii) the date on which the last collective bargaining agreement terminates; or (b) December 31, 2008. Presumably, under this provision, the three-year notice would be due for the third year after the collective bargaining effective date. (Click on the following text to return to the Compliance Alert.)
3
The deadline under PPA ’06 for retroactively amending plans is the last day of the first plan year beginning on or after January 1, 2009. (Click on the following text to return to the Compliance Alert.)
4
In 2005, the IRS revamped its determination letter program to provide staggered remedial amendment cycles for retirement plans. In accordance with this program, plans on the schedule labeled Cycle D (all multiemployer plans and non-multiemployer plans sponsored by employers with Employer Identification Numbers ending in “4” or “9”) may file during the 12-month period running from February 1, 2009 through January 31, 2010. For more information on Cycle D filings, see Segal’s August 13, 2009 Compliance Alert, “IRS Cycle D Retirement Plan Filings: Six Months and Counting.” (Click on the following text to return to the Compliance Alert.)
5
FAB 2006-03 is available on the DOL’s Web site. A second FAB, No. 2007-03, deals with the periodic benefit statement for defined contribution plans that do not permit participant investment direction. (Click on the following text to return to the Compliance Alert.)
6
See FAB 2006-3, Issue 3. (Click on the following text to return to the Compliance Alert.)

Compliance Alert, The Segal Company’s periodic electronic newsletter summarizing important developments affecting benefit plan compliance, is for informational purposes only. It is not intended to provide authoritative guidance. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.