Pension Protection Act Guide - January 2009 - (Page 14)

Pension Protection Act Guide – Defined Benefit (DB) Plans SpEcIfIc poINtS EffEctIvE DatE currENt Law pENSIoN protEctIoN act what It mEaNS to you hybrID pLaNS continued hybrid Plan Provisions – Conversions June 29, 2005 No guidance or provision. Conversions after June 29, 2005, must meet a minimum standard. Generally, the benefit in place before the conversion is preserved, with the cash balance providing additional accruals immediately. Early retirement subsidies are preserved to the extent they are earned at retirement date. • If you have considered converting your traditional DB plan to a cash balance plan, now is the time to take steps to pursue that option. PPA legitimizes the cash balance plan design. We will work with you to determine if a cash balance plan meets your needs. • Provides the method to convert your traditional DB plan to a hybrid plan. This approach is commonly described as A+B, and is designed to eliminate the possibility that participants will have a period of no benefit accrual after a conversion. • Plan sponsors who have not yet converted to cash balances will have a much easier time doing so. Elimination of age discrimination and “whipsaw” will make plan design much easier. hybrid Plan Provisions – Age Discrimination August 17, 2006 A DB plan may not reduce the rate of benefit accruals or cease benefit accruals because of the attainment of any age. Cash balance plans are not age discriminatory so long as pay and interest credits for older workers are not less than pay and interest credits for younger workers with the same pay and service. • If you have a hybrid plan affected by this rule, we have contacted plan sponsors where we are the service provider to discuss alternatives. Note: Along with the recent IBM court decision, and implementation of the rules set forth by PPA, a major source of discomfort of plan sponsors with using cash balance plan designs has been removed. hybrid Plan Provisions – Vesting Varies according to the establishment date of the plan DB plans are required to utilize a vesting schedule that does not exceed either a five-year cliff or a seven-year graded schedule (20% per year). Vesting is three-year cliff. It applies to a participant’s entire benefit if any portion of the benefit is earned under a hybrid formula. Effective dates: • for plans in existence on June 29, 2005, the effective date is for plan years beginning on or after January 1, 2008. • for plans established after June 29, 2005, the effective date is the date the plan is established. • If you currently utilize a hybrid plan, we have contacted plan sponsors where we are the service provider to discuss the vesting change. • If you are considering converting or starting a new hybrid plan, you will need to meet the new vesting schedule requirement. hybrid Plan Provisions – Interest Rates Varies according to the establishment date of the plan No guidance or provision. Interest rates cannot exceed a market rate of return. Negative interest can be credited as long as the sum of pay credits is not reduced as of the participant’s annuity starting date. The IRS released Notice 2007-6 that gives “Safe harbor rates” that plans may follow until additional guidance is issued. Effective dates: • for plans in existence on June 29, 2005, the effective date is for plan years beginning on or after January 1, 2008. • for plans established after June 29, 2005, the effective date is the date the plan is established. • The IRS has not released final guidance that defines a market rate of return. • We will work with you to review what interest rates your hybrid plan currently uses. 14

Table of Contents Feed for the Digital Edition of Pension Protection Act Guide - January 2009

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

For optimal viewing of this digital publication, please enable JavaScript and then refresh the page. If you would like to try to load the digital publication without using Flash Player detection, please click here.