Pension Protection Act Guide - January 2009 - (Page 5)

Pension Protection Act Guide – Multiple Plan Types SpEcIfIc poINtS EffEctIvE DatE currENt Law pENSIoN protEctIoN act what It mEaNS to you govErNmENtaL ruLES continued withdrawal tax on the amount includable in income (unless an exception applies). Currently, governmental employers must satisfy minimum required distribution rules. however, current regulations are unclear that they satisfy the requirements if they comply with a reasonable good faith interpretation of the statutory requirements. Indian Tribal Governments Immediately Governmental plans (plans established by a federal, state, or local government, or an instrumentality thereof) are subject to their own set of rules. No statutory authority clarified the status of Indian tribal plans as a governmental plan. Plans that are established and maintained by an Indian tribal government may be treated as governmental plans under Code Section 414(d) if the only participants under the plan perform services in essential governmental functions and not in the performance of commercial activities (whether or not an essential government function). for example, a plan of a tribal government whose only participants are teachers in the tribal schools is a governmental plan while a plan whose participants include tribal employees working in a hotel operated by the tribal government is not a governmental plan. • Indian tribal plans now will have certainty of their governmental status. • Please contact us if your plan satisfies the definition of a governmental plan or if your plan could satisfy the definition of a governmental plan if the participants were divided into separate plans (one written on a governmental plan document and one that is not). The IRS released Notices 2006-89 and 2007-67 that provide transition relief under a reasonable and good faith standard for complying with PPA changes to Code Section 414(d). mIScELLaNEouS Phased Retirement Plan years beginning on or after January 1, 2007 In general, payments from pension plans may not be made until the later of an employee’s termination of employment or the attainment of normal retirement age. The ERISA bond requirement is 10% of plan assets with a maximum of $500,000. Permits a DB or money purchase pension plan to allow in-service distributions to a participant who has reached age 62, even if normal retirement age is past age 62. • This provides a gradual transition for some employees leaving the workforce. • The IRS has not published any rules around how phased retirement should work. • We can work with you to help determine if you want to allow phased retirement in your plan. • Since the minimum bond generally must be 10% of assets, this change generally affects all retirement plans with more than $5 million in assets holding individual employer securities as an investment. ERISA Bonding for plan years beginning on or after January 1, 2008 The ERISA bond maximum is increased from $500,000 to $1 million for plans invested in employer securities. This requirement disregards employer securities held as part of a broadly diversified pooled or common investment vehicle independent of the employer. Allows a combination DB and 401(k) plan that is: • Exempt from the top-heavy rules. • Deemed to satisfy the ADP and ACP tests. • funded through a single trust with a single plan document. • only required to file a single form 5500. • Applicable to small employers with less than 500 employees when established. The DB portion must provide: • A benefit of at least 1% of final average compensation (not to exceed five year average) per year of service (maximum 20 years). • 100% vesting after three years of service. DB(k) Plans for plan years beginning on or after January 1, 2010 Currently, a DB plan and a DC plan must be maintained as separate plans. • We can discuss this plan design option to see if it may be of interest to you in the future. • We will keep you updated on additional guidance if this plan design is of interest to you. 5

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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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