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Amendment Deadline Looming for PPA Changes

The Pension Protection Act of 2006 (“PPA”) became law on August 17, 2006. It was one of the most sweeping retirement reform bills in recent history, mandating a host of changes for tax-qualified retirement plans. Most of these changes are already in effect – in some cases, for years. Accordingly, most sponsors have long since wrestled with the necessary changes to plan administration and are operating their plans in compliance with PPA’s requirements. 

Others have implemented some of the PPA’s optional provisions. But most PPA changes will require plan amendments, as well, and the deadline for adopting those amendments is fast approaching.

The PPA gives plan sponsors until the end of the 2009 plan year to amend their documents (2011 for governmental plans). This lag between the effective date and the amendment deadline creates a trap for the unwary. Sponsors who implemented PPA changes in the “real world” years ago must not overlook the necessary plan amendments. Even those who are aware of the deadline might forget necessary document changes because of the sheer number of new requirements.

Here is a partial list of the PPA changes that may require amendments to tax-qualified retirement plans:

  • Faster vesting rules for employer contributions;

  • New funding rules for defined benefit plans;

  • New automatic enrollment rules for 401(k) plans;

  • Modified actuarial assumptions and mortality tables for lump sums and other payments subject to the Tax Code’s present value requirements;

  • A 75% “qualified optional survivor annuity” requirement for plans that offer annuity forms of payment;

  • Greater diversification rights for plans holding publicly traded employer securities;

  • Expanded direct rollover rules;

  • An extended notice and consent period for distributions; and

  • Benefit limitations for underfunded defined benefit plans.

Now is the time for sponsors to review their plan documents for compliance with the PPA. Sponsors of calendar-year plans have until only December 31 to adopt the necessary amendments. For some this will mean revisiting complex retirement plan issues that they have already addressed with participants and administrative staff. But timely amendments will avoid the need for a costly corrective filing with the IRS.