Pension Protection Act of 2006 (P.L. 109-280)

I. FUNDING AND RELATED PROVISIONS FOR SINGLE-EMPLOYER DEFINED BENEFIT PENSION PLANS

VII. BENEFIT ACCRUAL STANDARDS; CASH BALANCE AND OTHER HYBRID DEFINED BENEFIT PLANS

XII. DIVERSIFICATION RIGHTS AND OTHER PARTICIPANT PROTECTIONS UNDER DEFINED CONTRIBUTION PLANS

1. Minimum required contribution -- in general

2. Definition of target normal cost

3. Definition of funding shortfall and funding target

A plan's funding shortfall for a year is the excess of the plan's funding target for the year over the value of plan assets, reduced by any credit balances. The funding shortfall for a year is generally amortized over 7 years.

Funding target

A plan's funding target for a year is the present value of all liabilities to participants and beneficiaries for the year.

Same as House bill, except, in determining a plan's funding shortfall, a percentage of the plan's funding target applies for 2007 and 2008 (93 and 96% respectively). In the case of a plan covering no more than 100 participants, the percentages for 2007-2010 are 92, 94, 96, and 98% respectively.

Funding target

Same concept as House bill, but described as the present value of all benefits accrued or earned as of the beginning of the year.

4. Definition of shortfall amortization charge and shortfall amortization base

Shortfall amortization base

The shortfall amortization base for a year is the excess of the plan's funding shortfall for the year over the present value of any remaining annual installments attributable to shortfall amortization bases for preceding years. Under a special rule, no shortfall amortization base is required to be established for a year if the plan's funding target does not exceed the value of plan assets, reduced for this purpose only by any prefunding balance and only if the employer elects to use the prefunding balance to reduce the required contribution for the year. In applying the special rule to certain plans that are not subject to the DRC rules for 2006, a percentage of the plan's funding target applies for 2007-2010 (92, 94, 96, and 98% respectively).

Shortfall amortization base

Same as House bill, except the special rule does not apply.

5. Waiver amortization charge

6. Effect of no funding shortfall

7. Interest rate used to determine present value

8. Mortality table used to determine present value

Present value is generally determined using RP-2000 Mortality Tables with improvements in mortality projected to the current year (with the effect of the mortality change phased in over 5 years, except for plans established after 2006).

Use of plan-specific table

Subject to certain requirements and Treasury approval, a plan-specific mortality table may be used. A plan-specific table can be used for the next year if Treasury fails to act on a request within 180 days.

Present value is generally determined using RP-2000 Mortality Tables as in effect on the date of enactment (with the effect of the mortality change phased in over 5 years) and as revised by Treasury at least every 10 years to reflect pension plan experience and projected trends. Separate tables apply for disabled participants.

Use of plan-specific table

Same as House bill, except that (1) in addition to the requirements under the House bill, there must be sufficient credible data for the table and, except as provided by the Secretary, the table is used by all plans maintained by members of the employer's controlled group, and (2) the 180-day period for Treasury action is extended while a request for further information from the employer is pending.

9. At-risk rules

10. Valuation date

11. Value of plan assets

12. Credit balances

A credit balance is reduced by charges to the funding standard account (unless a contribution is made to offset charges).

A credit balance is credited with the plan's assumed interest rate regardless of the investment performance of the plan assets.

A carryover or prefunding balance is reduced by any amount used to offset the required contribution for a year and adjusted (as provided in regulations) to reflect the investment performance of the plan assets for the preceding year.

An employer chooses whether to use a credit balance to reduce a required contribution.

Restriction on use

A credit balance cannot be used to reduce the required contribution for a year if, for the preceding year, the value of plan assets (reduced by any prefunding balance) was less than 80% of the plan's funding target (determined without regard to at-risk status).

Same as House bill.

Restriction on use

If, for the preceding year, the value of plan assets (without reduction by any prefunding balance) was less than 80 percent of the plan's funding target (determined without regard to at-risk status), the employer must, regardless of any prefunding balance, contribute the greater of (1) target normal cost, or (2) 25% of the otherwise required contribution (thus, a prefunding balance can be used to offset only the portion of the required contribution exceeding this amount).

13. Quarterly contribution requirements

14. Effective date

The special rules applicable for 2004 and 2005 apply for 2006.

Years after 2006

For years after 2006: (1) the plan's mortality table is used in determining required contributions and PBGC variable rate premiums, (2) a special phase-in of the plan's funding target applies for purposes of whether a shortfall amortization base is required for 2007-2011, and (3) the plan is not subject to the quarterly contribution requirements.

Years after 2006

For years after 2006: (1) the plan's mortality table is used in determining required contributions and PBGC variable rate premiums, and (2) in determining the plan's funding shortfall, the value of plan assets is not reduced by any prefunding balance if, pursuant to an agreement with the PBGC, the prefunding balance cannot be used to reduce required contributions.

A rescued plan is a plan sponsored by an employer in bankruptcy, giving rise to a claim by the PBGC of between $100 million and $150 million, and the sponsorship of which was assumed by an employer outside the controlled group, resolving the PBGC claim.

1. Shutdown and other unpredictable contingent event benefits

2. Benefit increases

A plan amendment may not increase benefits if the plan is less than 80% funded, or would be less than 80% funded taking into account the benefit increase, unless the employer, in addition to any required contribution, contributes a certain amount as determined under the provision. The limitation does not apply for the first 5 years of a plan's existence. (The provision does not change the prohibition on benefit increases while a funding waiver is in effect or a plan sponsor is involved in bankruptcy proceedings.)

Benefit increase

A benefit increase resulting from an increase in compensation or an increase in benefit rate under the plan is treated as having been made by a plan amendment.

Same as House bill, except the 80% requirement is applied on the basis of the plan's "adjusted" funded status. Adjusted funded status is determined by increasing the plan assets and liabilities by certain distributions (such as lump sums) made during the 2 preceding years.

Benefit increase

Benefit increases resulting from compensation increases under a compensation-based benefit formula are not subject to the provision. In the case of benefits not based on compensation, the provision does not apply to a plan amendment increasing benefits if the rate of increase does not exceed the contemporaneous rate of increase in participants' average wages.

3. Certain types of distributions

Plans must provide that certain accelerated forms of distribution (such as lump-sums) will not be made if the plan is less than 80% funded. An exception applies if, as of June 29, 2005, and thereafter, the plan provides for no benefit accruals. (The present-law liquidity shortfall provision is retained.)

4. Additional benefit accruals

5. Use of credit balance in determining funded status

6. Special rules for collectively bargained plans

7. Additional rules relating to contributions to avoid limitations

Additional contributions required to avoid benefit limitations are treated as required contributions for certain purposes, including excise tax purposes. (Under the general credit balance rules, additional contributions to avoid benefit limitations do not increase a credit balance.)

8. Notice requirement

9. Presumptions as to funded status

If a plan was subject to a benefit limitation for the preceding year, the plan's funded status is presumed to be the same for the current year (so the limitation continues to apply) until the plan actuary certifies the plan's actual funded status.

Actuarial certification delayed

If the plan actuary fails to certify the plan's funded status by the 10th month of the current year, the plan is presumed to be less than 60% funded.

Presumed deterioration

If a plan was funded for the preceding year at less than 10 percentage points above the level at which a benefit limitation applies and the plan's actuary fails to certify the plan's funded status by the 4th month of the current year, the plan's funded status is presumed to be 10 percentage points lower than the preceding year (so benefit limitation applies).

Same as House bill, except the presumption rules apply on the basis of the plan's adjusted funded status.

Actuarial certification delayed

Same as House bill, except the presumption rules apply on the basis of the plan's adjusted funded status.

Presumed deterioration

No provision.

10. Treatment of plan after benefit limitation ends

11. Effective date

Generally effective for plant shutdowns and similar events occurring after 2006.

Other benefit limitations

Generally effective for plan years beginning after 2006, with a special rule for determining 2006 funded status for purposes of applying the presumption rules in 2007.

Collectively bargained plans

A delayed effective date applies to plans maintained pursuant collective bargaining agreements ratified before the date of enactment. In no event is provision effective later than 2009.

No provision. (However, sec. 404 of the Senate amendment phases in the PBGC guarantee for plant shutdown and other unpredictable contingent event benefits payable by reason of an event occurring after July 26, 2005.)

Other benefit limitations

Same as House bill, except the provision (1) does not include the special rule for 2006 funded status, and (2) specifies that years before 2007 are not taken into account (thus, the limitations on distributions and additional accruals do not apply before 2008).

Collectively bargained plans

A delayed effective date applies to plans maintained pursuant collective bargaining agreements ratified before 2007. In no event is provision effective later than 2010.

Assets set aside for purposes of paying nonqualified deferred compensation are treated as property transferred in connection with the performance of services under Code section 83 at the time set aside if located outside of the United States, thus resulting in income inclusion. A transfer of property resulting in income inclusion also occurs with respect to compensation deferred under a nonqualified deferred compensation plan if the plan provides that upon a change in the employer's financial health, assets will be restricted to the payment of nonqualified deferred compensation.

If the preceding requirements are not satisfied, in addition to current income inclusion, interest applies at the underpayment rate plus 1 percentage point and the amount required to be included in income is subject to a 20% additional tax.

The rule does not apply in the case of assets that are set aside before the defined benefit pension plan is in at-risk status.

If a nonqualified deferred compensation plan of an employer provides that assets will be restricted to the provision of benefits under the plan in connection with the at-risk status of any defined benefit pension plan of the employer, or assets are so restricted, such assets are treated as property transferred in connection with the performance of services.

The present-law rules relating to income inclusion, interest rate, and the 20% additional tax apply.

The provision applies if nonqualified deferred compensation is funded when the qualified pension plan is in a restricted period. A restricted period includes the period when (1) the plan's adjusted funding status is less than 60% (80% in the case of a plan in at-risk status), (2) any period that the plan sponsor is in bankruptcy, and (3) in the case of a plan that terminates, the 12-month period beginning on the date which is 6 months before the termination date of the plan if, as of the termination date, plan assets are not sufficient for benefit liabilities.

Application of the provision is limited to covered employees (i.e., the CEO and 4 highest paid officers (other than the CEO) of the employer.)

1. Amortization periods

2. Extensions of amortization periods

3. Interest rate applicable to funding waivers and extensions of amortization periods

4. Controlled group liability for required contributions

5. Actuarial assumptions

6. Shortfall funding method

7. Effective date

1. In general

2. Annual certification of status; notice; annual reports

Requires certification by a plan's actuary by the 90th day of each plan year of whether the plan is in endangered or critical status; failure to certify causes the plan to be presumed in critical status and an ERISA penalty of up to $1,100 a day applies.

Notice

Requires the plan sponsor of a plan in endangered or critical status to provide notice of such status to plan participants and beneficiaries, bargaining parties, the Secretaries of Treasury and Labor, and the PBGC.

Annual reports

Requires a summary of a funding improvement or rehabilitation plan and an update of the plan's funding percentage to be included in the plan's annual report and the summary annual report.

Same as House bill, except (1) for a plan with a funding improvement or rehabilitation plan, annual certification of the plan's scheduled progress is also required, and (2) a failure to certify the plan's status is treated as a failure to file an annual report for the plan (so an ERISA penalty of up to $1,100 a day applies).

Notice

Same as House bill.

Annual reports

Requires annual updates to a funding improvement or rehabilitation plan and inclusion of the update in the plan's annual report.

3. Rules for plans in endangered status

A plan is in endangered status if (1) its funded percentage (i.e., the value of plan assets as a percentage of accrued liability) is less than 80%, or (2) the plan has an accumulated funding deficiency or is projected to in the next 6 years.

Information to be provided to bargaining parties

Within 90 days of certification of a plan's endangered status, the plan sponsor must provide the bargaining parties with options for revised benefit and contribution structures to enable the plan to meet requirements of the funding improvement plan, including (1) an option based on reductions in future benefit accruals and no contribution increases (except as needed to meet the requirements of the funding improvement plan after maximum permissible reductions in future benefit accruals), and (2) an option based on increased contributions and no reductions in future benefit accruals.

Additional options must be provided at the request of an employer employing, or an employee organization representing, at least 5% of the plan's active participants. The plan sponsor may also provide other appropriate information.

Funding improvement plan

The plan sponsor must adopt a funding improvement plan within 240 days of certification of endangered status. Under a general rule, a funding improvement plan must be expected, over the funding improvement period, to decrease the percentage by which the plan is underfunded by one-third and avoid an accumulated funding deficiency. Under a special rule, if the plan's funded percentage is 70% or less (or between 70% and 80% and certain certifications are made), the percentage by which the plan is underfunded must decrease by one-fifth over 15 years.

Funding improvement period

The funding improvement period is the 10-year period beginning on the earlier of (1) the date two years after the date the funding improvement plan is adopted, and (2) the first day of the first plan year beginning after the expiration of collective bargaining agreements that were in effect when the plan's endangered status was certified and that cover at least 75% of the plan's active participants.

Requirements pending approval of plan and during funding improvement period

The plan sponsor must take reasonable actions necessary to increase the plan's funded status and avoid a funding deficiency; the level of plan contributions and the scope of plan coverage may not be reduced; benefits may not be increased unless the plan actuary certifies the requirements of the funding improvement plan will still be met; and distribution amounts must be restricted.

Penalty for failure to adopt a funding improvement plan

The plan is deemed to be in critical status and an ERISA penalty of up to $1,100 a day applies. (The present-law excise tax also applies if the plan has an accumulated funding deficiency.)

Failure to satisfy funding improvement plan requirements

No provision.

Same as House bill, except the term "seriously endangered" is used for a plan having (or projected to have) an accumulated funding deficiency in the next 6 years.

Information to be provided to bargaining parties

Within 30 days of the adoption of a funding improvement plan, in the case of a plan in seriously endangered status, the plan sponsor must provide the bargaining parties with options for revised benefit and contribution structures to enable the plan to meet the requirements of the funding improvement plan, including an option based on reductions in future benefit accruals and no contribution increases (except as needed to meet the requirements of the funding improvement plan after maximum reductions in future benefit accruals). The plan sponsor may also provide other appropriate information.

Funding improvement period

Same as House bill, except that (1) the relevant collective bargaining agreements are determined as of the deadline for certifying a plan's status, and (2) the period ends if the plan leaves endangered status or enters critical status.

Requirements pending approval of plan and during funding improvement period

Same as House bill, except also allows benefit increases under a plan that is not seriously endangered if paid for by increased contributions, does not restrict distribution amounts, and provides for updates of the contribution schedules.

Penalty for failure to adopt a funding improvement plan

Failure is treated as a failure to file an annual report for the plan (so an ERISA penalty of up to $1,100 a day applies). (The present-law excise tax also applies if the plan has an accumulated funding deficiency.)

Failure to satisfy funding improvement plan requirements

If a plan fails to meet the requirements of the funding improvement plan by the end of the funding improvement period, the present-law excise tax applies, based on the greater of (1) the amount of contributions needed to increase the plan's funded status to meet the requirements of the funding improvement plan, or (2) the plan's accumulated funding deficiency.

4. Rules for plans in critical status

A plan may be in critical status based on a combination of various factors, such as its funding percentage, an actual or projected accumulated funding deficiency, and the value of plan assets and expected future employer contributions compared with expected benefit payments. A plan is also presumed in critical status if plan certification or endangered plan requirements are not met.

Additional contributions during critical status

Additional contributions (referred to as a "surcharge") are required in the amount of 10% (5% for the first year of critical status) of the contributions each employer is otherwise required to make under the collective bargaining agreement. Employers must be provided with advance notice of surcharges. Surcharges cannot be the basis for benefit accruals under the plan and are generally disregarded in determining an employer's withdrawal liability. Surcharges cease to apply as of the date a collective bargaining agreement is renegotiated to include (1) a schedule of benefits and contributions pursuant to the rehabilitation plan, or (2) otherwise collectively bargained changes.

Reductions to previously earned benefits

The plan trustees may reduce or eliminate certain benefits and benefit options (other than accrued benefits payable at normal retirement age and certain annuity options), except for participants and beneficiaries in pay status for at least a year before the plan enters critical status. Appropriate benefit reductions may be made based on the outcome of collective bargaining over schedules of contribution increases and benefit reductions to achieve the rehabilitation plan standards (including benefits of participants with respect to whom contributions are not currently required, based on the plan's overall funding status and future prospects). Benefit reductions are disregarded in determining an employer's withdrawal liability.

Information to be provided to bargaining parties

Within 90 days of certification or presumption of a plan's critical status, the plan sponsor must provide the bargaining parties with options for contribution increases and benefit reductions to meet the requirements of the rehabilitation plan, including (1) an option based on reductions in future benefit accruals and no contribution increases, and (2) the contribution increases that would still be needed after maximum permissible reductions in future benefit accruals. Additional options must be provided at the request of an employer employing, or an employee organization representing, at least 5% of the plan's active participants.

Rehabilitation plan

The plan sponsor must adopt a rehabilitation plan within 240 days of certification of critical status. A rehabilitation plan generally must (1) provide for measures agreed to by the bargaining parties (such as increased contributions and reduced future benefit accruals), so that, over the rehabilitation period, the plan ceases to be in critical status, or (2) if the plan sponsor determines that, with all reasonable measures, the plan would not cease to be in critical status by the end of the rehabilitation period, reasonable measures to forestall insolvency. The rehabilitation plan must provide annual standards for meeting the applicable requirements.

Rehabilitation period

The rehabilitation period is the 10-year period beginning on the earlier of (1) the date two years after the date the rehabilitation plan is adopted, and (2) the first day of the first plan year beginning after the expiration of collective bargaining agreements that were in effect when the plan's critical status was certified or presumed and that cover at least 75% of the plan's active participants.

Rules for reductions in future benefit accrual rates

Reductions must be applied to active participants in proportion to the extent contribution increases apply to their employer; a limit applies on the rate to which benefit accruals can be reduced; restored benefit accrual rates may not be reduced.

Requirements pending approval and during rehabilitation plan

The level of plan contributions and scope of plan coverage may not be reduced; benefits may not be increased unless the plan actuary certifies the requirements of the rehabilitation plan will still be met; and distribution amounts must be restricted. Contribution and benefit accrual schedules may be updated (but not more often than every 3 years.)

Failure of employer to make contributions

The plan sponsor may treat an employer's failure to make Contributions required under the rehabilitation plan as a withdrawal or partial withdrawal from the pension plan.

Penalty for failure to adopt a rehabilitation plan

Future benefit accruals must be reduced to the level needed for the plan to leave critical status without increased contributions, and an ERISA penalty of up to $1,100 a day applies. (An excise tax also applies as described below.)

Same as House bill, except for a different period over which the value of plan assets and expected future employer contributions are compared with expected benefit payments, and presumed critical status does not apply.

Additional contributions during critical status

No provision.

Reductions to previously earned benefits

No provision.

Information to be provided to bargaining parties

Within 30 days of the adoption of a rehabilitation plan, the plan sponsor must provide the bargaining parties with options for revised benefit and contribution structures to enable the plan to meet the requirements of the rehabilitation plan. The options must include a designated default schedule based on (1) maximum permissible reductions in future benefit accruals and other benefits, and (2) no contribution increases except as needed after such reductions. The plan sponsor may also provide other appropriate information.

Rehabilitation plan

Same as House bill, except (1) adoption is required within 240 days of the deadline for certifying a plan's status, (2) in the case of a determination that the plan cannot emerge from critical status by the end of the rehabilitation period, background information is required, (3) annual standards are not required, and (4) the designated default schedule automatically applies if the bargaining parties fail to adopt a collective bargaining agreement consistent with the requirements of the rehabilitation plan.

Rehabilitation period

Same as House bill, except that (1) the relevant collective bargaining agreements are determined as of the deadline for certifying a plan's status, (2) the period ends if the plan leaves critical status, and (3) a plan remains in critical status until the plan's actuary certifies the plan is not projected to have an accumulated funding deficiency in the current year or the 9 following years.

Rules for reductions in future benefit accrual rates

Limits rate to which benefit accruals can be reduced similar to House bill; provides different protection from House bill for certain restored benefits. Benefit reductions are disregarded in determining an employer's withdrawal liability.

Requirements pending approval and during rehabilitation plan

Same as House bill, except (1) benefit increases must be paid for by increased contributions, (2) contribution schedules may be updated (with update required at least every 3 years), and (3) the plan sponsor must consider the impact of the rehabilitation plan and schedules on bargaining parties with fewer than 500 employees.

Failure of employer to make contributions

No provision.

Penalty for failure to adopt a rehabilitation plan

Failure is treated as a failure to file an annual report for the plan (so an ERISA penalty of up to $1,100 a day applies). (The present-law excise tax also applies if the plan has an accumulated funding deficiency.)

5. Application of excise tax to plans in critical status

6. Additional rules

7. Effective date

1. Repeal of limitation on withdrawal liability in certain cases

Limits apply to withdrawal liability in the case of (1) a bona fide sale of all or substantially all of the employer's assets in an arm's length transaction to an unrelated party, and (2) an insolvent employer undergoing liquidation or dissolution.

2. Repeal of limitation of withdrawal liability to 20 annual payments

3. Withdrawal liability continues if work contracted out

4. Repeal of special rule for long and short haul trucking industry

5. Application of forgiveness rule to plans primarily covering employees in building and construction

In general, an employer (or controlled group member) must make withdrawal liability payments even if contesting the plan sponsor's determination. However, in the case of withdrawal liability based on certain disregarded transactions occurring before January 1, 1999, withdrawal liability payments do not have to be made before a final decision upholding the plan sponsor's determination.

Provides that the amendments made to the multiemployer plan funding and withdrawal liability rules under the bill generally do not apply to plan years beginning after December 31, 2014, and generally reinstates present law for such years, except that funding improvement and rehabilitation plans and amortizations in effect at the time of the sunset continue.

Defined benefit plans may provide retiree medical benefits through separate accounts under such plans. In the case of a single-employer plan, if the value of plan assets exceeds the greater of (1) accrued liability, or (2) 125% of current liability, and certain other requirements are met, qualified transfers of excess pension assets may be made to such separate accounts, but not to exceed the amount expected to be paid for retiree medical benefits in the year of the transfer. Such transfers may not be made after December 31, 2013. Qualified transfers of excess pension assets under multiemployer plans are not permitted.

1. Definition of amount involved

2. Exemption for block trading

3. Bonding relief

4. Exemption for electronic communication network or financial markets trading system

5. Conforming ERISA's prohibited transaction provision to the Federal Employee Retirement System Act ("FERSA")

6. Relief for foreign exchange transactions

7. Definition of plan asset vehicle

8. Cross trades study

9. GAO study

10. Effective date

The plan administrator of a defined contribution plan must provide participants with advance notice of a blackout period, which includes a period during which participants' ability to direct investments is suspended for more than 3 consecutive business days.

No provision.

Changes in investment options

A participant is not treated as not exercising control over the assets in his or her account if, in connection with a change in investment options offered under the plan, a participant's account is reallocated to new investment options that have reasonably similar characteristics to the previous investment options chosen by the participant, provided that (1) the plan administrator provides the participant advance notice and information about the change, and (2) the participant has not provided affirmative investment instructions contrary to the change.

Effective date

Changes in investment options taking effect on or after January 1, 2006.

The exception to fiduciary liability when participants exercise control over investments does not apply in connection with a blackout period during which participants' ability to direct investments is suspended. However, a fiduciary that fulfills its fiduciary responsibility in authorizing and implementing the blackout period is not liable for losses occurring during the blackout period as a result of a participant's exercise of control over investments before the blackout period. Within 180 days of enactment, the Secretary of Labor (in consultation with Secretary of Treasury) is directed to issue regulations providing guidance, including safe harbors, for satisfying fiduciary responsibilities during a blackout period in which the right to direct investments is suspended.

Changes in investment options

In the case of a blackout period in connection with a change in the investment options offered under a plan, a participant is deemed to have exercised control over the assets in his or her account before the blackout period if, after the participant is given notice of the change in investment options, the assets in the participant's account are transferred (1) to other options in accordance with the participant's affirmative election, or (2) in the absence of such an election and if fiduciary relief applied for prior investment options, to options in the manner set forth in the notice.

Effective date

Plan years beginning after December 31, 2005, with a delayed effective date for collectively bargained plans.

An ERISA interpretive bulletin requires a fiduciary choosing an annuity provider for purposes of distributions from a plan (whether on separation or retirement of a participant or on termination of the plan) to take steps calculated to obtain the safest available annuity, based on the annuity provider's claims paying ability and creditworthiness, unless under the circumstances it would be in the interest of participants to do otherwise.

1. Flat-rate premiums

Beginning in 2011 and every five years thereafter, the PBGC is to report to the Congress regarding recommendations for adjusting the flat-rate premium.

2. Variable-rate premiums

Beginning in 2007, the determination of unfunded vested benefits is modified to reflect the changes to the funding rules under the bill.

Beginning in 2007, the variable-rate premium applies to all unfunded benefits, not only unfunded vested benefits, and the definition of unfunded benefits is modified to reflect the changes to the funding rules under the bill.

3. Termination premiums

Within limits, the PBGC guarantees benefits if a plan terminates without sufficient assets to pay all benefits due under the plan. The amount of benefits guaranteed by the PBGC is determined as of the date of plan termination.

In applying the minimum coverage rules to a plan maintained pursuant to a collective bargaining agreement, participants who are not covered by the collective bargaining agreement are treated as covered under a separate plan.

If a plan is terminated while an election under the provision is in effect, the first day of the first plan year for which an election was effective is treated as the termination date for certain purposes, including the amount of benefits guaranteed by the PBGC (except in the case of a plan that provides future accruals or benefit increases that are immediately funded). Before the PBGC may initiate termination proceedings with respect to a plan covered by an election, it must determine whether an alternative funding agreement would make plan termination unnecessary and, if so, take all actions needed to ensure an alternative funding agreement is entered into. Certain management pilots are treated as covered by a collective bargaining agreement for purposes of the minimum coverage rules.

The per-participant variable-rate premium for plans of employers with 25 or fewer employees is limited to $5 multiplied by the number of plan participants.

The plan administrator of a pension plan generally must file an annual report including certain information about the plan. The annual report is generally due within 210 days after the end of the plan year; under regulations, an automatic extension of up to 2-1/2 months (to approximately 285 days after the end of the plan year) may apply. No further extension is available in the case of hardship.

Summary annual report

A plan administrator must provide a summary of the annual report to participants within 2 months after the due date of the annual report.

PBGC multiemployer plan study

The PBGC is required to conduct a study every 5 years relating to multiemployer plan premiums and guarantee levels and report to the House Committees on Ways and Means and Education and the Workforce and the Senate Committees on Finance and Health, Education, Labor, and Pensions.

Requires certain additional information to be provided in the annual report of a defined benefit pension plan, depending on whether it is a single-employer or multiemployer plans and requires certain information to be provided in electronic format for Internet display by the Secretary of Labor. Allows the Secretary of Labor to extend the due date for the annual report required with respect to a pension plan beyond 285 days after the end of the plan year only on a case-by-case basis and only in the case of hardship.

Summary annual report

Requires certain additional information to be included in the summary annual report and requires the summary annual report to be provided within 15 business days of the due date of the annual report.

Multiemployer plan information on request

Requires actuarial and financial reports prepared for a multiemployer plan to be provided to participants and contributing employers on request. Requires the plan administrator to provide withdrawal liability and certain other information to a contributing employer on request.

New multiemployer plan notice

No provision.

Effective date

Plan years beginning after December 31, 2005.

Same as House bill, except some differences in the additional information required to be provided.

Summary annual report

Requires the summary annual report to be provided within 30 days of the due date of the annual return; allows the requirement to be met by display on the Internet if the summary annual report is provided within 30 days of display.

Multiemployer plan information on request

Same as House bill.

New multiemployer plan notice

Requires certain plan information to be provided to contributing employers and employee organizations representing participants within 30 days of the filing of the annual report for the plan.

PBGC multiemployer plan study

Requires the PBGC, within 5 years of date of enactment and at least every 5 years thereafter, to report to Congress on the fiscal condition of the multiemployer plan system.

Effective date

Same as House bill, except effective for plan years beginning after December 31, 2007, in the case of certain information required to be provided in the annual report of a multiemployer plan.

A single-employer defined benefit pension plan with assets insufficient to provide all the benefits due under the plan may be terminated by the employer only if certain criteria relating to financial distress are met. The plan administrator must provide 60 days advance notice of a proposed distress termination to affected parties (i.e., participants, any employee organization representing participants, and the PBGC). In addition, certain information relating to the need for a distress termination must be provided to the PBGC.

Involuntary terminations

The PBGC may initiate termination of a single-employer defined benefit pension plan in certain circumstances after issuing notice thereof to the plan administrator.

Generally requires information (other than certain confidential information) provided to the PBGC relating to the need for a distress termination to be provided to participants and any employee organization representing participants within 15 days after a request for the information.

Involuntary terminations

Generally requires (1) a plan sponsor or administrator to provide participants and any employee organization with any information (other than certain confidential information) provided to the PBGC in connection with an involuntary termination, and (2) the PBGC to provide participants and any employee organization with a copy of the administrative record relating to an involuntary termination.

Effective date

Plan terminations with respect to which notice of intent to terminate, or the PBGC's determination of involuntary termination, occurs after date of enactment.

ERISA imposes standards on the conduct of plan fiduciaries, including persons who make investment decisions with respect to plan assets. Fiduciaries are personally liable for any losses to the plan due to a violation of fiduciary standards.

An individual account plan may permit participants to make investment decisions with respect to their accounts. ERISA fiduciary liability does not apply to investment decisions made by plan participants if participants control the investment of their individual accounts, as determined under ERISA regulations. In that case, a plan fiduciary may be responsible for the investment alternatives made available, but not for the specific investment decisions made by participants.

In the case of an individual account plan under which participants direct the investment of assets, exemptions from prohibited transaction treatment apply under ERISA and the Code in connection with (1) investment advice provided to the plan or a participant by a fiduciary adviser, (2) investments made pursuant to that advice, and (3) fees received for the advice or investments, if certain disclosures are made and other requirements are met.

Fiduciary rules

An employer or fiduciary under ERISA is not subject to fiduciary liability solely because of investment advice provided by a fiduciary adviser that satisfies the requirements for the prohibited transaction exemption. The provision does not exempt a plan fiduciary from fiduciary responsibility for the prudent selection and periodic review of a fiduciary adviser. Plan assets may be used to pay reasonable expenses for investment advice provided by a fiduciary adviser.

Effective date

Advice provided on or after January 1, 2006.

No provision.

The plan sponsor or other fiduciary is not liable for any loss or breach with respect to investment advice provided to a participant by a qualified investment adviser. A qualified investment adviser is deemed to be a fiduciary with respect to the provision of investment advice to participants.

Effective date

Investment advisers designated after date of enactment.

Amends ERISA and the Code to provide a method, applicable to all defined benefit plans, of satisfying the prohibition on age discrimination.

Determination based on entire accrued benefit

A defined benefit plan does not violate the prohibition on age discrimination if a participant's entire accrued benefit, determined as of any date, would be equal to or greater than that of any similarly situated, younger individual.

For this purpose, the subsidized portion of any early retirement benefit, including any early retirement subsidy, that is fully or partially included or reflected in an employee's opening balance or other transition benefits, is disregarded. The entire accrued benefit may be expressed as the present value of accrued benefits projected to normal retirement age, a hypothetical account balance, or the current value of the accumulated percentage of the employee's final average pay. The provision is intended to apply to hybrid plans, including pension equity plans.

Plans do not violate the prohibition on age discrimination solely because the plan provides:

• that benefits are offset by all or a portion (including an estimate) of Social Security or Railroad Retirement benefits; benefits under another qualified plan of the same employer; or benefits under a retirement program for officers or employees of the Federal or State government; or such other arrangements as the Treasury Secretary may provide;

• for permitted disparity in contributions or benefits; or

• for indexing of benefits.

Amends ERISA, ADEA, and the Code to provide rules for cash balance and other hybrid plans.

Rules for cash balance plans

A qualified cash balance plan does not violate the age discrimination rules merely because it may reasonably be expected that the period over which interest credits will be made is longer for a younger participants. This rule does not apply if the rate of any pay credit or interest credit decreases by reason of the participant's attainment of any age.

A cash balance plan is a defined benefit plan under which the accrued benefit is determined by reference to the balance of a hypothetical accumulation account to which pay and interest credits are credited. The term cash balance plan includes other plans with a similar effect as provided by the Treasury Secretary.

A qualified cash balance plan meets certain requirements with respect to vesting and interest credits.

A qualified cash balance plan must provide that benefits vest at least as rapidly as under 3-year cliff vesting.

A qualified cash balance plan must provide that interest credits (or equivalent amount) are (1) not less than the applicable Federal mid-term rate and (2) not greater than the greater of such rate or a rate equal to the rate of interest on amounts invested conservatively in long-term investment grade corporate bonds (as determined by the Treasury Secretary).

If a qualified cash balance plan using a variable interest rate terminates, the interest rate used to determine accrued benefits is the average of the interest rates used under the plan over the last 5 years.

A plan that is converted into a cash balance plan is treated as violating ERISA and Code anticutback rules unless the conversion is to a qualified cash balance plan and benefits are determined under one of three methods: (1) "no wearaway"; (2) participant election; and (3) other methods as prescribed by the Secretary. The method used must be specified in the plan and applied uniformly to participants. Similar rules apply to early retirement benefits or retirement-type subsidies.

If the plan provides participants with an election, notice requirements apply and, if during the first 5 years a participant election is in effect there is a significant reduction in the rate of future benefit accrual, the accrued benefit of the participant is determined as if the participant had made the election which results in the greatest accrued benefit.

No wearaway approach

(1) The accrued benefit of a participant is the sum of the accrued benefit for (a) years of service under the plan before the amendment, plus (b) years of service under the plan after the amendment. Under (b), the benefits must meet one of the following requirements: (i) the accrued benefit for all participants for the first 5 years after conversion is the greater of the benefit under the old and new formulas, or (ii) for each participant over age 40 with combined age and service of not less than 55, the benefit is determined under the old or new formula as elected by the participant.

Participant election

The plan provides that either (1) the accrued benefit is the greater of the old formula or the new formula, or (2) participants may elect at the time of conversion which formula to apply.

Other methods prescribed the by the Treasury Secretary

The accrued benefit is determined under regulations that provide for additional credits or increases in initial account balances to have an equivalent effect to the other methods.

Mergers and acquisitions

Directs the Secretary of Treasury, within 12 months of date of enactment, to prescribe rules for cases where a cash balance plan conversion is made with respect to a group of employees affected by a merger, acquisition, or similar transaction.

Adjustments for subsidized benefits

If any early retirement benefit or retirement type subsidy is not included in the initial account balance, it must be credited when the participant retires if the participant has met the age, years of service and other requirements for the benefit or subsidy.

Notice of election

Participants must be given notice and other information relating to their right to elect between benefit formulas.

The statute provides that no inference is intended as to the proper treatment of cash balance plans or conversions prior to the effective date.

No provision.

Years after 2006

An employer generally may deduct the greater of (1) the excess (if any) of the sum of (a) 150% of the plan's funding target and (b) the plan's target normal cost, over the value of plan assets, and (2) the excess (if any) of the sum of (a) the plan's at-risk funding target and (b) the plan's at-risk target normal cost (regardless of whether the plan is in at-risk status), over the value of plan assets.

Effective date

Contributions for taxable years beginning after December 31, 2006.

Same as present law, except in no case is the limit less than the excess of 180% of the plan's current liability over the value of plan assets.

Years after 2006

An employer generally may deduct the greater of: (1) the excess (if any) of the sum of (a) the plan's funding target, (b) the plan's target normal cost, and (c) a cushion amount, over the value of plan assets; and (2) the required contribution under the funding rules. The amount in (1) is not less than the excess (if any) of the sum of (a) the plan's at-risk funding target and (b) the plan's at-risk target normal cost (regardless of whether the plan is in at-risk status), over the value of plan assets. The cushion amount is the sum of (1) 80% of the plan's funding target, and (2) the amount by which the funding target would increase if certain expected compensation, benefit, and limit increases were taken into account.

Effective date

Contributions for taxable years beginning after December 31, 2005.

The overall limit is not less than the deduction limit for contributions to single-employer defined benefit plans, as modified by the bill.

Contributions to multiemployer plans

The overall limit is not less than the excess of 140% of a multiemployer defined benefit plan's current liability over the value of the plan's assets.

Contributions to defined contribution plans

The overall limit applies to contributions to a defined contribution plan only to the extent they exceed 6% of compensation.

Effective date

Taxable years beginning after December 31, 2006.

The overall limit is not less than a single-employer defined benefit plan's funding shortfall, and single-employer defined benefit plans insured by the PBGC are not taken into account in applying the overall limit.

Contributions to multiemployer plans

Multiemployer plans are not taken into account in applying the overall limit.

Contributions to defined contribution plans

Same as House bill.

Effective date

Generally contributions for taxable years beginning after December 31, 2005, except the provision relating to the overall limit for contributions to single-employer plans is effective for contributions for taxable years beginning after December 31, 2006.

1. In general

2. Amount of elective contributions

Employees who were already participating in the plan do not have to be covered under automatic enrollment.

Employees who were already participating in the plan with a contribution rate less than the percentage that would apply to them under the automatic enrollment arrangement do not have to be covered under the automatic enrollment arrangement until one year after the arrangement is in effect (or such earlier date as the employee may elect).

3. Nondiscrimination requirements

With respect to nonhighly compensated employees, the plan must provide for matching contributions equal to 50 percent of elective contributions up to 6% of compensation or a nonelective contribution equal to at least 2% of compensation. Such contributions are deemed to satisfy the ADP test and comparable rule for matching contributions.

Participation requirement

Elective contributions must be made for at least 70% of eligible nonhighly compensated employees (employees who were participating before the automatic feature was adopted may be disregarded).

Same as the House bill, except that matching contributions must be made with respect to elective contributions up to 7% of compensation and the rate for nonelective contributions is 3% of compensation.

Participation requirement

No provision.

4. Vesting and distribution requirements for matching and nonelective contributions

5. Erroneous automatic elective contributions

6. Fiduciary rules applicable to default investments of individual account plans

An individual account plan may permit participants to make investment decisions with respect to their accounts. ERISA fiduciary liability does not apply to investment decisions made by plan participants if participants exercise control over the investment of their individual accounts, as determined under ERISA regulations. In that case, a plan fiduciary may be responsible for the investment alternatives made available, but not for the specific investment decisions made by participants.

7. Preemption of State law

8. Effective date

The amount of a qualified reservist distribution may be recontributed to an IRA within 2 years after the end of the active duty period. No deduction is allowed for such contributions.

Amounts received under a qualified long-term care contract generally are excludable from income. In the case of long-term care insurance coverage provided by a rider on or as part of a life insurance contract, the requirements applicable to long-term care insurance contracts apply as if the portion of the contract providing such coverage were a separate contract.

Charges against the contract

Charges against the cash value of a life insurance or annuity contract are treated as distributions that may be subject to tax. No medical expense deduction generally is allowed for charges against the life insurance contract's cash surrender value for long-term care insurance provided by a rider on or as part of the contract.

Guideline premium limitation

For life insurance contracts with long-term care riders, the guideline premium limitation applicable under section 7702(c)(2) is increased by the sum of charges (but not premium payments) against the life insurance contract's cash surrender value, the imposition of which reduces premiums paid for the contract.

Qualified additional benefits

For Federal income tax purposes the definition of a life insurance contract provides that a qualified additional benefit under a life insurance contract means only (1) guaranteed insurability, (2) accidental death or disability benefit, (3) family term coverage, (4) disability waiver benefit, or (5) a benefit prescribed in regulations.

Tax-free exchanges

Present law provides for the exchange of certain insurance contracts without recognition of gain or loss.

Capitalization of certain expenses

In the case of an insurance company, specified policy acquisition expenses for any taxable year are required to be capitalized, and are amortized generally over a 120-month period. Specified policy expenses means a percentage of net premiums: 1.75 percent for annuity contracts, 2.05 percent for group life insurance contracts, and 7.7 percent for all other specified contracts.

The provision provides for tax rules applicable to long-term care insurance that is provided by a rider on or as part of an annuity contract, and modifies the tax rules applicable to long-term care insurance coverage provided by a rider on or as part of a life insurance contract.

Charges against the contract

Charges against the cash value of an annuity contract or the cash surrender value of a life insurance contract for qualified long-term care insurance coverage that is part of or a rider on the annuity or life insurance contract are not includible in the holder's income. The investment in the contract is reduced by any such charges. The portion of the contract providing long-term care insurance coverage is treated as a separate contract. No medical expense deduction is allowed for such charges.

Guideline premium limitation

For life insurance and annuity contracts with long-term care riders, the guideline premium limitation is increased by charges against the contract's cash surrender value for coverage under the qualified long-term care insurance contract (reduced by charges that reduce the premiums paid for the life insurance contract).

Qualified additional benefits

The provision increases the amount of pre-funding permitted by treating qualified long-term care insurance coverage under the rider as a qualified additional benefit, for purposes of the present-law definition of a life insurance contract.

Tax-free exchanges

Expanding the rules for tax-free exchanges of certain insurance contracts, the provision provides that no gain or loss is recognized on the exchange of a life insurance contract, an endowment contract, an annuity contract, or a qualified long-term care insurance contract for a qualified long-term care insurance contract.

Capitalization of certain expenses

In the case of an annuity or life insurance contract that includes a qualified long-term care insurance contract as a part of or rider on the annuity or life insurance contract, the specified policy acquisition expenses that must be capitalized is determined using 7.7 percent of the net premiums for the taxable year on such contracts.

Effective date

The provision is generally effective for contracts issued before, on, or after December 31, 2006, but only with respect to periods beginning after that date. The provision expanding the rules for tax-free exchanges of certain insurance contracts applies with respect to exchanges occurring after December 31, 2006.

Requires immediate diversification rights for amounts attributable to elective deferrals and employee contributions, and diversification rights after three years of service for amounts attributable to employer nonelective and matching contributions.

For years before 2007, certain individuals may receive a tax credit (referred to as the "saver's credit") for retirement plan contributions, including IRA contributions.

Employer matching contributions must vest at least as rapidly as under one of two schedules: (1) 3-year cliff vesting, or (2) a graduated schedule that provides for 20% vesting after 2 years of service, increasing until the participant is 100% vested after 6 years of service.

If a single-employer defined benefit plan is terminated and a participant cannot be located (a "missing participant"), the plan administrator may transfer the missing participant's benefit to the PBGC to hold until the PBGC locates the participant.

Tax Court judges:

• may elect to be covered by a Tax Court survivor's annuity plan under which benefits are payable after 5 years of service and COLAs are based on pay increases for Tax Court judges;

• are not eligible to participate in the Thrift Savings Plan;

• may participate in the Federal Employees Group Life Insurance ("FEGLI") program after retirement;

• are not covered by the leave system for Federal Executive Branch employees; and

• are subject to limitations on outside earned income under the Ethics in Government Act of 1978.

• benefits are payable under the Tax Court survivor's annuity plan without regard to years of service if a judge is assassinated, and COLAs are generally based on cost of living increases under the Civil Service Retirement System;

• judges may participate in the Thrift Savings Plan, but are not eligible for agency contributions;

• the Tax Court may pay certain premium increases under the FEGLI program for judges age 65 or older;

• a judge is entitled to a lump-sum payment from the Tax Court for the balance of his or her annual leave accrued as a Federal Executive Branch employee; and

• compensation earned by a retired Tax Court judge for teaching is not treated as outside earned income for purposes of the Ethics in Government Act of 1978.

Special trial judges:

• serve for an indefinite term;

• receive a salary of 90% of the salary of a Tax Court judge; and

• are generally covered by the leave and benefit programs that apply to Federal Executive Branch employees.

• are appointed (or reappointed) for 8-year terms, subject to removal in limited circumstances;

• receive a salary of 92% of the salary of a Tax Court judge;

• are exempt from the leave program that applies to Federal Executive Branch employees;

• are covered by the Tax Court retirement and survivor's annuity programs; and

• after retirement, may be recalled to perform services for limited periods.

(sec. 1311 of the Senate amendment)

2. Extension to all governmental plans of current moratorium on application of certain nondiscrimination rules applicable to State and local governmental plans

(sec. 1312 of the Senate amendment)

3. Clarification that tribal governments are subject to same defined benefit plan rules and regulations applied to State and other local governments, their police and firefighters

(sec. 1313 of the Senate amendment)

4. Effective date

(sec. 1314 of the Senate amendment)

(sec. 1321 of the Senate amendment)

2. Treatment of death benefits from company-owned life insurance ("COLI")

(sec. 1322 of the Senate amendment)

No deduction is permitted for premiums paid on any life insurance, annuity or endowment contract, if the taxpayer is directly or indirectly a beneficiary under the contract. No deduction generally is allowed for interest paid or accrued on any debt with respect to a life insurance, annuity or endowment contract owned by the taxpayer covering the life of any individual, with an exception for key persons.

No deduction generally is allowed for the pro rata portion of interest expense of a taxpayer (other than a natural person) that is allocable to the unborrowed policy cash value of a life insurance, annuity or endowment contract, with an exception for contracts covering 20- percent owners, officers, directors or employees of the taxpayer's business.

Federal tax law generally does not impose notice and consent or specific reporting requirements with respect to employer-owned life insurance.

The notice and consent requirements of the provision are met if, before the issuance of the contract, (1) the employee is notified in writing that the applicable policyholder intends to insure the employee's life, and is notified of the maximum face amount at issue of the life insurance contract that the employer might take out on the life of the employee, (2) the employee provides written consent to being insured under the contract and that such coverage may continue after the insured terminates employment, and (3) the employee is informed in writing that an applicable policyholder will be a beneficiary of any proceeds payable on the death of the employee. The bill requires annual reporting and recordkeeping by applicable policyholders that own one or more employer-owned life insurance contracts.

(sec. 1331 of the Senate amendment)

2. Addition of special rules for funding of collectively bargained retiree health benefits

(sec. 1332 of the Senate amendment)

Defined benefit plans may provide retiree medical benefits through separate accounts ("retiree medical accounts") under the plan. In the case of a single-employer plan, if the value of plan assets exceeds the greater of (1) accrued liability, or (2) 125 percent of current liability, and certain other requirements are met, qualified transfers of excess pension assets may be made to retiree medical accounts, but the amount transferred cannot exceed the expected cost of retiree medical benefits for the year of the transfer ("current year"). Retiree medical benefits must be maintained at a certain level for the current year and four subsequent years. Such transfers may not be made after December 31, 2013.

Deductions for contributions

Deductions for contributions to qualified retirement plans are subject to certain limits. Deductions for contributions to funded welfare benefit plans are generally also subject to limits, including limits on the amount that may be contributed to an account to fund the expected cost of retiree medical benefits for future years. The limit on the amount that may be contributed to an account to fund the expected cost of retiree medical benefits for future years does not apply to a separate fund established under a collective bargaining agreement.

Permits transfers (before January 1, 2014) of excess pension assets under a single-employer plan to retiree medical accounts to fund the expected cost of retiree medical benefits provided in the current and future years under a collective bargaining agreement, if the requirements for a qualified transfer are otherwise met. Applies only if (1) for the employer's taxable year ending in 2005, medical benefits are provided to retirees (and spouses and dependents) under all the employer's benefit plans, and (2) the aggregate cost of benefits for such year is at least five percent of the employer's gross receipts.

Requires retiree medical benefits to be provided at the level determined under the collective bargaining agreement for the shorter of (1) the remaining lifetime of each covered retiree (and any covered spouse and dependent), or (2) the period of coverage provided under the collectively bargained health plan for such covered retiree (and any covered spouse and dependent).

Deductions for contributions

Provides that (1) the limits on deductions for contributions to collectively bargained welfare benefit funds apply to contributions to retiree medical accounts providing retiree medical benefits under a collective bargaining agreement, and (2) the limits on deductions for contributions to qualified retirement plans do not apply to such contributions. Directs the Secretary of the Treasury to provide rules to prevent duplicate deductions for the same contributions or for duplicate contributions to fund the same benefits.

3. Allowance of reserve for medical benefits of plans sponsored by bona fide associations

(sec. 1333 of the Senate amendment)

These limits do not apply to a welfare benefit fund that is part of a plan (referred to a "10-or-more employer" plan), to which (1) more than one employer contributes, and (2) no employer normally contributes more than 10 percent of the total contributions, provided that the plan may not maintain experience rating arrangements with respect to individual employers.

(sec. 1336 of the Senate amendment)

The assets of a qualified retirement plan (either a defined contribution plan or a defined benefit plan) must be held in trust for the exclusive benefit of participants and beneficiaries. The requirements applicable to defined contribution plans and defined benefit plans differ in some respects. Qualified retirement plans are also subject to annual reporting requirements, which generally apply on a plan-by-plan basis.

Nondiscrimination rules

Contributions or benefits under a qualified retirement plan generally may not discriminate in favor of highly compensated employees. In some cases these nondiscrimination requirements may be met on a safe-harbor basis or by taking into account permitted disparity or contributions or benefits under another plan. Elective deferrals under a section 401(k) plan, employee contributions, and matching contributions are subject to special nondiscrimination tests that generally cannot be satisfied by taking into account other contributions or benefits, except as provided under certain safe harbors (described above in Item IX.C.3). Under a section 401(k) plan, no benefits other than matching contributions can be contingent on whether an employee makes elective deferrals.

Vesting rules

In general, the right to employer-provided contributions or benefits under a qualified retirement plan must be fully vested after five years of service or must vest at a rate of not less than 20 percent a year after three through seven years of service.

Employer matching contributions must be fully vested after three years of service or must vest at a rate of not less than 20 percent a year after two through six years of service. Faster vesting schedules (and certain minimum required contributions or benefits) are required under a plan that is top-heavy. Elective deferrals and employee contributions must be fully vested when made.

Provides special rules for an "eligible combined plan," defined as a plan (1) maintained by an employer employing at least two and not more than 500 employees during the preceding year, (2) consisting of a defined benefit plan and a section 401(k) plan, (3) the assets of which are held in a single trust with the assets of each plan clearly identified and allocated to the plan, and (4) meeting the benefit, contribution, vesting, and nondiscrimination requirements under the provision. The requirements otherwise applicable to a defined benefit plan or a section 401(k) plan forming part of an eligible combined plan continue to apply. A defined benefit plan or section 401(k) plan under an eligible combined plan is treated as meeting the top-heavy requirements. An eligible combined plan is treated as a single plan for annual reporting purposes.

Defined benefit plan rules

A defined benefit plan under an eligible combined plan must provide each participant with a minimum accrued benefit of the greater of (1) 1% of final average pay times years of service, or (2) 20% of final average pay. An alternative benefit requirement applies if the defined benefit plan is a cash balance plan. Additional benefits may be provided if they satisfy the applicable nondiscrimination requirements without regard to contributions or benefits under another plan or permitted disparity and are provided uniformly to all participants. All benefits under the plan must be fully vested after 3 years of service.

Section 401(k) plan requirements

A section 401(k) plan under an eligible combined plan must provide for automatic elective deferrals of 4% of compensation and for fully vested matching contributions of 50% of elective deferrals up to 4% of compensation. The plan is deemed to satisfy the nondiscrimination requirements applicable to elective deferrals and matching contributions. Additional nonelective contributions may be provided if they satisfy the applicable nondiscrimination requirements without regard to contributions or benefits under another plan or permitted disparity, are provided uniformly to all participants, and are fully vested after three years of service.

Effective date

Plan years beginning after December 31, 2008.

2. State and local governments eligible to maintain section 401(k) plans

(sec. 1337 of the Senate amendment)

(sec. 1342 of the Senate amendment)

2. Technical correction to Saver Act

(sec. 1343 of the Senate amendment)

The Act also convened a National Summit on Retirement Savings held June 4-5, 1998. National Summits have also been held February 28-March 1, 2002 and March 1-2, 2006.