Reform Signed into Law

CHANTILLY, Va. - President Bush signed The Pension Protection Act, P.L. 109 – 280 into law last month. It will affect all single and multiemployer defined benefit plans, including the National Pension Fund and local pension funds. Most of the new law's provisions take effect in 2008.

The new law increases the deduction limit for employer contributions to 140 percent of current liability, up from 100 percent, enabling plans to build financial reserves to offset future downturns in the market. The law eliminates the punitive IRS excise tax for employers in plans with an accumulated funding deficiency.

The new law will also force faster funding of new obligations by requiring benefits to be amortized over 15 years instead of 30 years. Plans with funding problems are required to improve their funding percentage. The law gives multiemployer plans with funding problems 10 to 15 years to improve their funding. For multiemployer plans in the worst shape, the law adds new flexibility for trustees and the bargaining parties in the area of benefit modifications, such as the ability to reduce or eliminate early retirement subsidies for participants who have not yet retired. To prevent plans in the worst shape from deteriorating further, employer surcharges apply until a program to improve funding has been approved.

The bill makes some technical changes in withdrawal liability, enhances retirement tax breaks, adds charitable giving limits, including a change for S-corporation shareholders, and makes permanent the increases in section 415 limits adopted in 2001 and other tax changes.

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Publication date: 09/25/2006

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