Pension Protection Act Guide - January 2009 - (Page 11)

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 • If a plan was restricted in the preceding year, it is assumed to remain restricted for the full plan year unless the valuation work is completed by october 1 (for a January 1 plan year). Timing of Valuations for plan years beginning on or after January 1, 2008 The valuation date may be any date during the plan year. Plans with more than 100 participants must use the first day of the plan year. Plans with 100 or fewer participants may choose any day of the plan year. pENSIoN bENEfIt guaraNty corporatIoN (pbgc) prEmIumS PBGC Variable Premiums for plan years beginning on or after January 1, 2008 An underfunded plan is required to pay both a flat-rate premium ($34 per participant for 2009) and a variable rate premium of $9 per $1,000 of unfunded vested benefits. Plans at the full funding limit are not required to make the variable rate premium. Plans at the full funding limit are not required to make the variable rate premium. Eliminates the full funding limit exception for the variable rate premium effective with the 2008 plan year. uses the same basis to determine pension plan liability, except uses a spot interest rate, not smoothed over 24 months. Assets are valued at fair market value and credit balances are not subtracted from assets in determining underfunding. • The elimination of the full funding exemption may increase the total premiums you need to pay annually to the PBGC if your funded status is less than 100%. Note: Premiums are likely to increase for underfunded plans. Premiums may increase for plans where asset losses had been deferred through an asset smoothing method. PBGC Premiums for plan years beginning on or after January 1, 2006 The Deficit Reduction Act of 2005 put a special premium in place for plans that terminated in bankruptcy. $1,250 per participant is required for three years after a company emerges from bankruptcy reorganization. The provision was scheduled to expire at the end of 2010. Makes the three-year bankruptcy premium payment provision permanent. • Applies to plan sponsors who recover from bankruptcy after terminating their DB plan on a distress termination basis. PBGC Premiums: Small Plans for plan years beginning on or after January 1, 2007 No provision addressing small plans. The variable premium for these employers is equal to the number of participants x $5 x number of participants. Thus, for a plan with 20 participants the premium will be as follows: 20 x $5 x 20 = $2,000. • Small plans (those with 25 or fewer plan participants) are subject to a cap on the PBGC variable premium. Shutdown Benefits July 26, 2005 DB plans may provide for shutdown benefits (as well as other unpredictable contingent events) without restriction or impact on PBGC guaranteed benefits. for PBGC guarantee purposes, shutdown benefits that are triggered by an event after July 26, 2005, will be phased in as though the triggering event date was the effective date. • Reduces the liability for PBGC in distress termination filings. 11

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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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