Pension Protection Act Guide - January 2009 - (Page 13)

Pension Protection Act Guide – Defined Benefit (DB) Plans SpEcIfIc poINtS EffEctIvE DatE currENt Law pENSIoN protEctIoN act what It mEaNS to you mIScELLaNEouS chaNgES continued Transfers to Retiree health Plans August 17, 2006 Generally, pension plan assets can’t revert to the employer prior to a plan termination and satisfaction of all plan liabilities. Although, excess pension plan assets may be transferred to a separate account in the pension plan to be used to pay qualified current retiree health liabilities on a year-byyear basis. Participant accrued benefits in the pension plan must become 100% vested. Generally, such transfers are limited to the lesser of pension plan assets in excess of 125% of current liability (using pre-PPA funding rules) or the retiree health liability for the year. If such transfers are not used to pay retire health benefits in the year of the transfer, any excess must be transferred back to the pension plan and a reversion tax is applied. Continued excess assets defined as amounts in excess of 125% of end of funding target plus target normal cost. Assets are reduced for credit balances. • If you are considering this option for your DB plan, please contact us to discuss. Note: Extends this little-used provision to allow sponsors with well-funded plans a way to reallocate excess plan assets without terminating the plan. hybrID pLaNS hybrid Plans – Whipsaw June 29, 2005 A lump sum distribution under a cash balance plan may not be less than the present value of the participant’s account converted to an annuity commencing at NRA (present value determined using 30-year Treasury). If the plan’s interest crediting rate exceeds the 30-year Treasury, the plan is required to pay a lump sum benefit that is greater than the participant’s account balance. This is commonly referred to as “whipsaw.” A plan can be amended to remove “whipsaw” and pay the hypothetical account balance or the cash benefit amount. The amendment must be adopted by the last day of the plan year beginning on or after 1-1-09. An ERISA Section 204(h) Notice must be given to participants at least 30 days prior to the date the plan is operated according to the amendment. • We have contacted sponsors of affected plans where we provide administrative services and have discussed design alternatives. 13

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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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