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Guest Article

Deloitte logo

(From the December 11, 2006 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

IRS, DOL, and PBGC Officials Outline Plans to Issue Guidance on the PPA


The first pieces of guidance relating to the Pension Protection Act (PPA) of 2006 (P.L. 109-280) are beginning to trickle out, and Labor and Treasury Department officials are promising more to come later this month -- and during all of 2007. Before the end of December the IRS is planning to issue guidance on the PPA's hybrid plan provisions and other miscellaneous PPA provisions taking effect in 2007. The agency then plans to turn its attention to the new single-employer funding rules and other PPA provisions that will begin to apply in 2008.

A panel of officials from Labor and Treasury, as well as the Pension Benefit Guaranty Corporation (PBGC), outlined their PPA-related guidance priorities during a December 5, 2006 teleconference sponsored by the American Bar Association. The panelists were Bob Doyle, Director, Office of Regulations and Interpretations, Department of Labor's Employee Benefits Security Administration (EBSA); Bill Bortz, Associate Benefits Tax Counsel, Department of the Treasury; and John Hanley, Director, Legislative and Regulatory Department, PBGC.

Treasury/IRS Agenda

As discussed in a related story beginning on page 5, Treasury and IRS on December 1 issued transitional guidance on the PPA's new diversification requirements for defined contribution plans holding the plan sponsor's publicly traded stock. That is in addition to limited guidance Treasury and IRS previously released on the PPA's special funding relief provisions for commercial airlines.

Mr. Bortz indicated Treasury and the IRS expect to issue at least two more pieces of PPA guidance sometime this month. One is transitional guidance on the PPA's provisions relating to cash balance and other hybrid pension plans. This transitional guidance may address a variety of issues, including the end of the IRS's moratorium on issuing determination letters for cash balance plans. Other matters will be left for proposed and final regulations to be issued in the future.

The second piece of transitional guidance Treasury and IRS plan to issue in December will be more of a "grab bag" in the sense that it will address a variety of PPA provisions relating to plan distributions set to take effect in 2007. These include the following:

  • Changing the hardship distribution rules to permit hardship distributions if the hardship or unforeseen financial emergency is experienced by the participant's beneficiary under the plan;
  • Updating the IRC § 402(f) pre-distribution notice to include an explanation of the consequences of failing to defer a distribution;
  • Permitting rollovers to IRAs by nonspouse beneficiaries;
  • Waiving the IRC § 72(t) 10 percent early withdrawal penalty tax for distributions from governmental pension plans to public safety officers who separate from service after age 50, and permitting tax-free distributions of up to $3,000 per year from governmental pension plans to pay health insurance premiums for retired public safety officers and their spouses and dependents; and
  • Imposing a three-year cliff vesting requirement (two to six year graded) for employer matching contributions to defined contribution plans.

In 2007, Mr. Bortz indicated Treasury and IRS would be focusing on issuing guidance on the PPA's new pension funding rules and mandatory benefit restrictions. This will be a multiple level process that almost certainly will continue into 2008 and beyond. Also in 2007 Treasury and IRS plan to issue guidance on the PPA's provisions relating to automatic enrollment in defined contribution plans.

In addition to these and other PPA-related projects, Treasury and IRS are continuing to move forward with additional significant regulatory priorities. These include final regulations relating to the IRC § 415 benefit and contribution limits, and final regulations for IRC § 403(b) plans. Mr. Bortz did not indicate when these regulations would be published.

EBSA Agenda

The EBSA jump-started the PPA guidance process by issuing proposed regulations on the fiduciary safe harbor for defined contribution plan default investment options in late September. Also, on December 4 the EBSA published two requests for information on certain narrow issues relating to the PPA's investment advice prohibited transaction exemption. 71 FR 70427, 70429 (December 4, 2006). But there is plenty more to come.

According to Mr. Doyle, proposed modifications to the Form 5500 as required by the PPA -- especially to Schedule B -- will be published in the Federal Register as early as Friday, December 8. Also in December, EBSA intends to issue interpretive guidance on the PPA's requirements for plans to issue individual benefit statements to participants.

In addition to issuing final guidance on default investment options and modifications to the Form 5500 in 2007, Mr. Doyle stated the EBSA would be providing guidance on the PPA's prohibited transaction exemption for cross trading and issuing requests for information on the prohibited transaction exemptions for block trades and electronic communications networks. The EBSA also plans to issue proposed regulations on the standards for individual account plans to select annuity providers early in 2007. Other PPA-related guidance the EBSA intends to issue by next summer includes interim final rules on the new defined benefit plan funding notice, including a model notice.

Among the significant non-PPA guidance projects EBSA is working on for next year is proposed guidance on fee disclosures for defined contribution plan investment options. This is a priority for the EBSA because of the attention being given this issue by the plaintiffs' bar and some key Members of Congress, including Representative George Miller (D-CA) -- who is the incoming chair of the House Committee on Education and the Workforce. A November 16, 2006 Government Accountability Office (GAO) office report on 401(k) plan fees (GAO-07-21) calls on Congress and the Department of Labor to take steps to require better disclosure of fees to plan participants. The EBSA hopes to issue proposed guidance in the early spring.

PBGC Agenda

The PBGC does not appear to be planning to issue any PPA-related guidance before the end of 2006. However, according to Mr. Hanley the PBGC is working on a number of projects for 2007. These include guidance on the PPA's benefit guarantee provisions and rules on the PPA's changes to single-employer premiums. The PBGC also is planning guidance on extending its missing participants program to defined contribution plans, but Mr. Hanley does not expect anything to be released before 2008.


Deloitte logoThe information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact: Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Taina Edlund 202.879.4956, Taina Edlund 202.879.4956, Laura Edwards 202.879.4981, Mike Haberman 202.879.4963, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Laura Morrison 202.879.5653, Martha Priddy Patterson 202.879.5634, Tom Pevarnik 202.879.5314, Carlisle Toppin 202.220.2067, Tom Veal 312.946.2595, Deborah Walker 202.879.4955.

Copyright 2006, Deloitte.


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