Pension Protection Act Guide - January 2009 - (Page 22)

Pension Protection Act Guide – Employer Securities SpEcIfIc poINtS EffEctIvE DatE currENt Law pENSIoN protEctIoN act what It mEaNS to you EmpLoyEr SEcurItIES continued Participant Notification of Diversification Rights of Employer Securities for plan years beginning on or after January 1, 2007 The summary plan description is required to provide information regarding diversification of employer securities. Participants subject to the new diversification rules described above (those with employee contributions or three years of service) must be notified at least 30 days prior to their eligibility for diversification of employer securities. Notice must also contain information regarding the importance of diversification of employer securities. • Enhanced notification of the right to diversify and the importance of diversification must be given to affected plan participants. • Traditional ESoP/KSoPs that are not subject to the new diversification rules are not required to change their notification procedures. however, information contained in the new notices may serve as a model for communicating with participants subject to traditional diversification. Note: ESoP/KSoPs may also be affected by PPA changes found in the DC summary. Please contact your service team at The Principal® to help answer questions you might have about the PPA. nonqualified Plans SpEcIfIc poINtS NoNquaLIfIED Linkage of DB and Nonqualified Plans Immediately Nonqualified deferred compensation plans can be established and informally funded irrespective of the existence or funding status of tax-qualified DB pension plans sponsored by the same employer. In general, if an employer sponsoring a qualified DB plan is bankrupt, an underfunded DB plan is terminated, or the plan is “at-risk” (less than 80% funded), and general corporate assets are transferred or set aside to fund nonqualified deferred compensation benefits while these conditions exist, then certain “key” executives will be taxed on their nonqualified plan benefits. A 20% tax penalty will apply, in addition to interest penalties at the appropriate underpayment rate. Employers with 500 or fewer qualified plan participants are exempt from the “at-risk” condition. This funding restriction applies immediately, except that a qualified DB plan cannot be classified “at-risk” until plan year beginning on or after January 1, 2008. • You should periodically review the total picture of benefits provided to executives and rank and file employees. Now, post-Enron, Congress has tied together the funding of qualified and nonqualified plans under certain conditions. The bottom line is that employers sponsoring nonqualified deferred compensation plans with features that require the transfer of plan assets to a trust under certain conditions, such as a change in control event, must pay attention to the funding status of its qualified DB plans as well in order to avoid severe tax penalties for their key executives. EffEctIvE DatE currENt Law pENSIoN protEctIoN act what It mEaNS to you 22

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

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