Pension Protection Act Guide - January 2009 - (Page 10)

Pension Protection Act Guide – Defined Benefit (DB) Plans SpEcIfIc poINtS EffEctIvE DatE currENt Law pENSIoN protEctIoN act what It mEaNS to you Db fuNDINg ruLE chaNgES continued valuable optional form at that age. The effect of these assumptions is phased in over the first five years a plan is considered “at-risk.” A loading factor of $700 per participant plus 4% of the funding target, is also added if a plan has been “at-risk” in two of the previous four years. If a plan had 500 or fewer participants each day of preceding plan year, it shall not be considered “at-risk” for that plan year. • Depending on your plan’s funded status, your plan could be affected. however, you will have time to remedy the situation annually during the valuation review process when your plan actuary will review the current funded status with you and help you determine if you want to make additional contributions or waive credit balances to avoid these restrictions. If your funded status is close to one of these thresholds, as determined in your most recent actuarial valuation report, you may want to budget for additional contributions in 2007. Note: If your plan offers lump sum options, we will need to pay special attention to avoid the negative employee relations impact of lump sum elimination — communicate impact effectively. If your plan is not tied to pay, it can still increase benefits up to the level of their pay increases for the same group, even if they would otherwise be subject to amendment restrictions. If applicable, collective bargaining agreements already in place can be honored through the end of the delay period. Lump sums include all types of benefits payable faster than a participant’s lifetime: single sum cash amounts, fixed period annuities, and Social Security level income options. Small amount force-out benefits are never restricted under these provisions (per WRERA). Benefit payment and accrual restrictions apply from the date of certification (or the presumption date) and end on the date that a funded status above the restriction level is certified. Note: having close administrative relationships between your plan actuary and your benefit administrator will be crucial to monitor communications and benefit restrictions and to ensure your plan remains in compliance. “At-risk” designation affects the funding and taxation rules for nonqualified deferred compensation plans in the following plan year for every plan in the controlled group. Credit balances may be waived to help avoid the “at-risk” designation. Benefit Restrictions for plan years beginning on or after January 1, 2008 Provides limitations on plans with more than 100 participants — may not be amended to increase benefits if the plan’s funded current liability percentage is less than 60% (which takes into account the amendment), unless the plan sponsor provides security or will fund the increase. Plan sponsors in bankruptcy generally cannot increase benefits until the plan sponsor emerges from bankruptcy. Limitations on benefit increases will apply if a funding waiver or amortization extension is in effect. Plans that do not have an asset/liability ratio of at least 110% may need to restrict the benefits payable to highly compensated employees. Plans below 60% funded are required to freeze benefit accruals, cease paying lump sums, and cease triggering of shutdown benefits, unless contributions are made immediately to raise plan’s funding percentage above 60%. Plans below 80% funded are prohibited from increasing benefits (unless immediately funded), and are permitted to pay no more than 50% of a participant’s benefit (to a maximum of the PBGC guaranteed benefit) as a lump sum. Plans where benefits are not tied to pay can still increase benefits, as long as the increases are not larger than the pay increases made during the same period for the people affected by the amendment. Plans with bankrupt sponsors are prohibited from paying lump sums unless the plan is fully funded. Plans funded at 100% using the full value of plan assets (not reduced for the funding standard carryover balance or the pre-funding balance) are not required to reduce asset by any pre-funding or funding standard carryover balances. The 100% is phased in, with a 92% target used for 2008, grading up to 100% in 2011. Plans must be at the phase-in targets each year to continue to use the phase-in schedule; otherwise the following year funding target will be at 100%. Special rules delay the effective date of these restrictions for collectively bargained plans: for plans where the bargaining agreement was ratified before January 1, 2008, the restrictions are delayed until the earlier of the end of the bargaining agreement or January 1, 2010. Timing of Restrictions for plan years beginning on or after January 1, 2008 The valuation date may be any date during the plan year. for the purpose of benefit restrictions, plans are deemed to be the same funding percentage they were in the prior year until the valuation work is done. • If the plan was within 10 percentage points of being limited in the prior year, they are presumed to drop those 10 points unless the valuation work is completed by April 1 (for a January 1 plan year). • Providing data to us very quickly after the plan anniversary is especially critical to prevent restrictions on plan amendments or a potential freeze of benefit accruals, if your plan is within 10 percentage points of being limited in the prior year. • A new certificate can be made in a plan year to reflect additional contributions or waiver of Credit balances that improves the funded status. 10

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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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