On December 11, the IRS extended the deadline for adopting amendments to reflect certain provisions of the Pension Protection Act of 2006 (PPA) by a year (until the last day of the first plan year that begins on or after January 1, 2010, or December 31, 2010, for plans with a calendar plan year). Previously, all amendments reflecting PPA provisions were generally required to be adopted by the end of the 2009 plan year. It is important to note that the relief described in this Alert only extends the deadline for adopting amendments to reflect the PPA provisions listed below. The dates as of which a plan must be operated in compliance with these rules have not been extended, and the amendment deadline has not been extended for any other amendments required under the PPA.
The amendment deadline extension applies only to the adoption of amendments for the following:
Defined Benefit Plan Limitations Based On Funding Status. Generally effective starting with the 2008 plan year, the PPA places restrictions on benefit accruals and the payment of certain “accelerated” distribution forms where a single-employer defined benefit plan’s funding level drops below specified statutory minimums. In addition to extending the amendment deadline, the IRS guidance provides that a plan will not be treated as violating the “anti-cutback” or “protected benefit” rules under section 411(d)(6) of the Internal Revenue Code if the plan is retroactively amended by the extended deadline and the amendment makes changes only to the extent necessary to enable the plan to meet these Code requirements.
Vesting Rules For “Cash Balance” And Other “Hybrid” Defined Benefit Plans. Generally effective starting with the 2008 plan year, the PPA requires that cash balance and other “hybrid” plans provide for full vesting no later than on completion of three years of service.
Market Rate Of Interest For “Cash Balance” And Other “Hybrid” Defined Benefit Plans. Generally effective starting with the 2008 plan year, a cash balance plan (and certain other “hybrid” plans) will be treated as failing age nondiscrimination requirements unless the plan provides that the interest credit for a plan year will not exceed a “market rate of interest.” Limited relief from the “anti-cutback” or “protected benefit” rules under section 411(d)(6) of the Code is expected to be provided when regulations are issued.
Diversification Requirements for Certain Defined Contribution Plans. Generally effective starting with the 2007 plan year, if the stock of the sponsor of a defined contribution plan (or certain of its affiliates) is readily tradable on an established securities market, the PPA requires that plan participants be able to direct the investment of their accounts to investments other than the employer stock fund. (This requirement does not apply to certain ESOPs.)