Pension Protection Act Guide - January 2009 - (Page 1)

jAnuAry 2009 Pension Protection Act Guide Historic legislation — find out how it might affect you! INSIDE thE guIDE PENSIoN PRoTECTIoN ACT PRoVISIoNS ThAT AffECT: Multiple Plan Types. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Learn more about topics that affect multiple plans including: • EGTRRA permanence; • Direct rollover to IRAs; and • DB(k) plans. The Pension Protection Act (PPA) was signed into law by President George W. Bush on August 17, 2006, with a stated goal of strengthening employees’ retirement security. While much of the legislation contains stricter DB plan funding rules, it also has new rules for DC plans, employer securities, and nonqualified plans. This special guide to the PPA outlines many of the features of this legislation and summarizes how this may affect your organization and employees. The sections are color-coded to help you find the changes that apply to: • • • • • DB Plans – Both funding and nonfunding issues DC Plans Employer Securities Nonqualified Plans Individual Investors Defined Benefit (DB) Plans . . . . . . . . . . . . . . . . . . . . . . 6 If you sponsor a DB plan, learn about topics including: • Extension of higher corporate bond rates and improved deductions for 2006-07; and • New funding rules, including what you need to know to be eligible for transition rules. Defined Contribution (DC) Plans . . . . . . . . . . . . . . . . . 16 If you sponsor a DC plan, learn about topics including: • Automatic enrollment; • Nondiscrimination testing; • Investments; and • Vesting. Employer Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 If you sponsor a qualified DC plan with publicly traded employer stock as an investment option, learn about topics including: • Vesting; and • The need to review plan design for investments and diversification. Nonqualified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 If you sponsor a qualified DB plan, learn about topics including: • How plan funding status may restrict your ability to directly or indirectly fund a nonqualified arrangement; and • New coverage and consent requirements when purchasing Corporate owned Life Insurance (CoLI). Non-DB funding rule highlights of the PPA include providing statutory support for cash balance plans and for automatic enrollment in 401(k) and 403(b) plans, making permanent the multiple enhancements of the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), and allowing for the creation of a combined DB and 401(k) plan, called the DB(k). While many changes are effective with plan years beginning in 2008, please use the guide to learn more about the immediate impact on your plan(s) and how you can best prepare to incorporate future requirements and optional designs into your strategy. Visit www.principal.com for updates and further guidance on the Pension Protection Act. As with past legislation, we’re ready to discuss implications for you and your plan participants. The Principal financial Group® is prepared to help you navigate the details: • We’ll work with you to model future funding or examine a cash balance design. • We’ll work with you to project the costs of plan design changes or review industry statistics to help you identify your goals. Bottom line: We’re here to work with you and help you understand the impact of these changes. Individual Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 As an individual investor, learn about topics including: • Charitable contributions; • Tax refund to IRA; and • Investment advice. http://www.principal.com

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Pension Protection Act Guide - January 2009 Contents Multiple Plan Types Defined Benefit (DB) Plans Defined Contribution (DC) Plans Employer Securities Nonqualified Individual Investors

Pension Protection Act Guide - January 2009

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