Pension Protection Act Guide - January 2009 - (Page 6)

Pension Protection Act Guide – Multiple Plan Types SpEcIfIc poINtS EffEctIvE DatE currENt Law pENSIoN protEctIoN act what It mEaNS to you mIScELLaNEouS continued The DB portion may utilize a cash balance formula that increases with a participant’s age. The 401(k) portion must provide: • Automatic enrollment with a 4% automatic enrollment salary deferral rate. • A matching contribution of 50% of at least 4% of compensation. • Immediate vesting for the match. A DB(k) plan may also allow nonelective contributions. Any non-elective contributions must vest after no more than three years. Plan Amendments 2009 or 2011 Generally, plan amendments need to be adopted by the end of the plan year in which they are effective. however, some plan amendments need to be adopted before the effective date of the change, while some need to be adopted by the end of the employer’s tax filing deadline for the taxable year that contains the effective date. Generally plans must be amended for the Pension Protection Act by the end of their 2009 plan year (2011 plan year for governmental plans). • Plan documents must be updated by the IRS deadlines. • If we provide document services for your plan, we will send you a timely amendment for you and your legal counsel to review. Defined Benefit (DB) Plans SpEcIfIc poINtS EffEctIvE DatE currENt Law pENSIoN protEctIoN act what It mEaNS to you Db fuNDINg ruLE chaNgES (SINGlE EMPloYER PlANS uNlESS NoTED oTHERWISE) Minimum funding Requirements for 2006 and 2007 plan years Prior to 2004, current liability was based on the 30-year Treasury rate. This changed for 2004 and 2005. The interest rate used for these plan years was based on a four-year average of investment-grade long-term corporate bonds. Beginning in 2006, the interest rate would revert back to the applicable 30-year Treasury rate. Extends the use of the four-year average corporate bond rate to calculate current liability for 2006 and 2007. • Current liabilities will be measured consistently with the method used for the past several years. The impact this will have on the current and future funding requirements for your plan will depend on your plan’s current funded status. • Certain transition rules and funding requirements effective in 2008 (see below) should be considered when determining the contribution level for the 2006 and 2007 plan years. Note: 2007 funding levels also determine 2008 “at-risk” status (see “at-risk” provisions below.) Many plans may see an increase in required contributions in the short term, while well-funded plans may not be required to contribute. You may want to consider budgeting additional contributions for the 2007 plan year to lessen the impact this will have on the current and future funding requirements of your plan during the next valuation cycle. for plan years beginning on and after January 1, 2008 Two-pronged approach that increases required contributions significantly when Contributions are based on a plan’s funding target. The minimum required contribution is the sum of the target normal cost plus an amortization of the funding shortfall. This changes how credit balances are used and applied. 6

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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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