South Carolina Lawyer
SC Lawyer, July 2007, #4.
The Pension Protection Act of 2006: Wide Ranging Changes to ERISA Not Limited to Just Employee Benefits
South Carolina LawyerJuly 2007The Pension Protection Act of 2006: Wide Ranging Changes to ERISA Not Limited to Just Employee BenefitsBy Douglas L. LineberryERISA, which stands for the Employee Retirement Income Security Act, is a five-letter word that causes businesspeople and legal practitioners consternation and no small amount of confusion. The potential for bewilderment has been further compounded by the recent, significant changes to ERISA. The Pension Protection Act of 2006 ("the Act") was signed into law on August 17, 2006. Some provisions of the Act were implemented immediately, whereas others took effect on January 1, 2007. Other provisions will become effective in 2008 and beyond. The primary focus of the Act is to stabilize pension plans and ensure they are fully funded to avoid problems, such as those associated with the collapse of Enron. Considering that approximately 44 million Americans are covered by traditional pension plans, to say that the Act is far-reaching is a vast understatement.
Despite what the name of the Act seems to suggest, the changes are not limited solely to employee pension plans. The Act contains provisions impacting 401(k) contributions, withdrawals from retirement accounts, charitable donations and numerous other areas. While a comprehensive discussion of the Act's approximately 1,000 pages is beyond the scope of this article, business managers and taxpayers should be aware of the following changes.
The Act contains numerous changes that will impact both current plans as well as those formed after 2007, including the following:
Businesses with in-house intranet systems must display the annual report information, Form 5500, on the company intranet system 60 days after filing the report.The Act provides rules for testing defined benefit plans and hybrid plans (which specify contributions to an account like a defined contribution plan but guarantee final benefits like a defined benefit plan) to determine if they violate the age discrimination provisions of the Tax Code, ERISA and the Age Discrimination in Employment Act.Beginning in 2008, new interest rates and a new mortality table will determine the minimum cash-out amount paid to participants. Instead of using the interest rate for 30-year treasuries, the Act requires the use of interest rates based on the yield curves of high quality corporate bonds. The new interest rates will be phased in over five years ending in 2012.Prior to the Act, plans had to vest participant benefits 100 percent after five years or 20 percent per year starting at year three. Defined contribution plans had accelerated vesting, but only for matching employer contributions with full vesting occurring after three years or 20 percent per year starting at year two. The Act reduces the vesting period to either a three-year "cliff" or a two to six year "phased vesting" period. While this sounds like a significant impact on businesses, market research suggests that more than 85 percent of...