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Newsletter
September
2007 Volume
24 - Number 1
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This newsletter is addressed to our clients, their attorneys,
accountants and other professional advisors. Citations may be included for
those who want to refer directly to the source material. IN THIS ISSUE:
DO PLANS TERMINATING IN 2007 NEED TO BE AMENDED TO COMPLY WITH THE
PENSION PROTECTION ACT OF 2006? - The Pension Protection Act of 2006 brought us many changes
and plan documents are required to comply in form. PERIODIC BENEFIT STATEMENTS FOR DEFINED CONTRIBUTION PLANS - The Pension Protection Act of 2006
contains new annual and quarterly benefit statement requirements. STAFF NEWS This newsletter can also be
viewed online at www.prplans.com. |
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DO PLANS TERMINATING IN 2007 NEED TO BE AMENDED TO COMPLY WITH THE
PENSION PROTECTION ACT OF 2006? Section 1107 of the Pension
Protection Act of 2006 (PPA) makes it clear that ongoing plans do not have to
be amended to comply with PPA until the last day of the 2009 plan year or the
last day of the 2011 plan year for a governmental plan. However, to remain
qualified, a plan that terminates before the extended amendment date must be
updated at the time of termination for all law changes that are effective as
of the plan’s termination date. Some of the PPA provisions are
optional and would only require a plan amendment if the optional provision was
implemented. Other PPA provisions are mandatory and require an employer to
adopt a PPA amendment. All of the 2006 changes made possible by PPA are
optional and therefore a plan which terminated in 2006 only need be amended
for PPA compliance if it implemented any optional changes. The changes effective in 2007
include both optional changes and required provisions. For example the
ability for a non-spouse beneficiary to rollover a distribution to an
inherited IRA is an optional change while more rapid minimum vesting
requirements and diversification of publicly traded employer securities are
required provisions. Several of the PPA provisions required for 2007 may not
affect the operation of a plan because the plan may not invest in publicly
traded employer securities, or because the plan presently provides a vesting
schedule for non-elective contributions that is at least as favorable as the
minimum required by PPA. Nevertheless it appears that a PPA amendment must be
adopted for a plan terminating in 2007 because IRS requires a plan document
to reflect the changes regardless of whether the changes have any actual
impact on the operation of the plan. A plan sponsor considering plan termination
should contact this office immediately to determine what amendments are
required to ensure that the plan is in a qualified status at the time of
termination. |
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PERIODIC BENEFIT STATEMENTS FOR DEFINED CONTRIBUTION PLANS The Pension Protection Act of 2006
(PPA) contains a provision requiring periodic benefit statements for plan
participants and beneficiaries. For plan years beginning after
December 31, 2006, ERISA section 105, as amended by PPA Section 508 requires
the plan administrator of a defined contribution plan to provide a benefit
statement at least once each calendar quarter to participants or
beneficiaries entitled to direct any portion of their account investments,
and at least once each calendar year to participants or beneficiaries not
entitled to direct their investments. A delayed effective date applies to
collectively bargained plans, and different standards apply to defined
benefit plans. ERISA requires the quarterly
benefit statements to include the following seven items: 1. Participant’s total account balance. 2. Participant’s vested account balance. 3. Value of each investment allocated to the
participant’s account. 4. Explanation of permitted disparity if used
in the plan. 5. Any plan restrictions on investment
direction. 6. Information on the diversification of
investments. 7. The
DOL web address for investment direction. The Department of Labor (DOL) will
issue proposed regulations applicable to the periodic benefit statement
requirement, possibly before the end of this year. However, until such
regulations have been published, the DOL has informally indicated that the participant
vested account balance requirement need only be satisfied annually. For those
plan administrators who normally provide vesting information at the time the
employer submits form 5500, continuation
of this practice will likely be adequate. With regard to item 6 above, the
easiest and safest way to provide information is through use of the DOL good
faith language contained in Field Assistance Bulletin 2006-03. The DOL web
site referenced in item 7 is http://www.dol.gov/ebsalinvesting.html Form of Benefit Statement Statements may be delivered in
written, electronic or other appropriate forms as long as such form is
reasonably accessible to the participant or beneficiary. The statements may
also be provided by use of a secure web site. If the latter method is used,
the plan administrator must provide a notice to participants and
beneficiaries in advance of the deadline for providing the first benefit
statement, and annually thereafter, that explains the availability of the
statement and how participants and beneficiaries may access the information.
The notice must also advise the participants and beneficiaries of their right
to request and obtain a paper version of the statement free of charge. Requirement for Electronic Delivery of Statements The DOL will regard a plan that
meets the DOL safe harbor for electronic delivery (DOL Reg. Section
2520.104b-1c) or the new IRS regulation on electronic delivery (Treas. Reg.
Section 1.401(a)-21) as good faith compliance. The DOL safe harbor permits a plan
to provide documents to a participant electronically if (1) the participant
can access the documents where he/she works and use of the system is part of
his/her duties; (2) the plan designs the delivery to result in actual receipt
of transmitted information; (3) the plan protects the confidentiality of the
participant’s personal information and (4) the participant is able to obtain
a paper version at no charge upon request. IRS
regulations generally provide a plan may provide a notice electronically if:
(1) the participant consents to such delivery after receiving a disclosure
statement; or (2) the participant is able to access the electronic medium
used to provide the notice. The plan also must notify the participant that he
or she may obtain a paper version at no charge. Deadline for Providing Statements The DOL will consider a plan as
providing a statement timely if the administrator provides the statement not
later than 45 days following
the applicable time period. The applicable time period for plans that provide
individual participant directed accounts is each calendar quarter. For
example, the benefit statement for a participant directed calendar year plan,
calendar quarter ending June 30 2007, must be provided by August 15, 2007.
For a fiscal year plan with a July 31 fiscal year-end, the applicable time
period is also each calendar quarter and the September 30, 2007 statement
must be provided by November 15, 2007 (45
days following the calendar quarter ending September 30, 2007). For a non-participant-directed
calendar year plan, the applicable time period is annual and the deadline for
the 2007 calendar year-end is February 15, 2008. Defined Benefit Pension Plans Defined benefit plans have a new
annual notice requirement, which is effective for plan years beginning in
2009. The first benefit statement or notice for a calendar year defined
benefit plan will be due on February 15, 2010, 45-days after the end of the
plan year. A defined benefit plan may satisfy the requirement by either providing
the statement or an annual notice of the availability of the statement and
the manner in which the participant may obtain it. Effect of Self-Directed Participant Loans If a plan which
is not participant-directed for other investments treats participant loans as
self-directed, must the plan provide quarterly benefit statements? No. Self
directed participant loans do not mean the plan is participant directed for
benefit statement purposes |
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STAFF NEWS Congratulations to Jenny Park for
passing the DC-3 Exam for Defined Contribution Administrative Issues –
Advanced Topics given by the American Society of Pension Professionals and
Actuaries (ASPPA). Welcome to Mark Barrion.
Mark joins us as an administrative assistant. |
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