The Pension Protection Act of 2006 seeks to overhaul pension and retirement fund rules established previously and address the conversion of plans, as well as other changes and rules to funding and disclosure of pension plans, according to Thomson RIA. There are several important areas covered in the provisions of the Act.
Taxes are important to all of us and a good place to start. According to the Committee on Ways and Means, some of the tax provisions of the massive bill include:
- Makes the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) permanent. It raised pension and individual retirement account contributions and enhanced vesting portability and reduced regulatory burdens. Income limits for traditional, spousal and Roth IRAs are now indexed to prevent erosion by inflation.
- The Saver's credit of up to $2000 is now permanent and indexed, rather than expiring after 2006.
- Public safety employees over 50 years of age can make distributions without incurring the 10 percent early withdrawal penalty.
- Early withdrawal penalties are removed from distributions taken by members of the National Guard and Reserves called to active duty through 2007. Distributions may be repaid to the plan or IRA within two years of the distribution without regard to the annual contribution limit.
- Provisions require that IRS tax refunds be directly deposited into IRA accounts.
- Employers are encouraged to offer automatic enrollment in employer-sponsored defined contribution pension plans. This safe harbor provision should encourage employee participation.
Thomson RIA reports that a number of qualified plan and IRA payout and rollover rules are liberalized including:
- Taxpayers will be permitted to make direct rollovers from qualified plans to Roth IRAs after 2007.
- 401(k) hardship distributions rules are eased.
- Certain distributions of up to $100,000 from both traditional and Roth IRAs would be deductible if made to a tax-exempt organization through 2007.
- Deduction rules are tightened for charitable contributions of clothing and household goods.
Trade is important to our economy. The Act's trade provisions should increase economic and trade opportunities for businesses, workers and consumers alike, according to the Committee on Ways and Means.
The duties on liquid crystal displays panel assemblies and ceiling fans are suspended after 2010. The duties on certain nuclear steam generators, reactor vessel heads and pressurizers are suspended through 2010.
The new shipper bonding privilege (in lieu of a cash deposit of estimated duties) is suspended.
Importers must pay into one of three special refund pools (wool fabric, wool yarn and wool fiber) exist under the wool trust fund. This is extended through 2009.
The provisions of the Miscellaneous Trade and Technical Corrections Act of 2006 affect certain selected products. The Pension Protection Act of 2006 corrects governmental errors.
The cost of equipment, repair parts and materials installed aboard a U.S. vessel are excluded from the 50 percent ad valorum duty on vessel repairs.
Special funding provisions for plans maintained by commercial airlines are enacted under the Pension Protection Act of 2006, according to the U.S. House of Representatives. Current law includes:
- Minimum funding rules under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code.
- Notice of certain plan amendments provided a significant reduction in the rate of future benefit accrual via written notice.
- Minimum funding requirements permit the funding of benefit plans over time and plans may be terminated when insufficient plan assets cannot provide for all employees under the plan. The Pension Benefits Guaranty Corporation (PBGC) will pay up to the amount of the legal limits, asset allocation and recovery on the PBGC's employer liability claim.
- As dictated under the Deficit Reduction Act of 2005, in certain plan terminations occurring between 2005 and 2011, a premium of $1,250 per participant is imposed on organizations in bankruptcy or similar conditions.
- Minimum coverage requirements are imposed if a plan fails the average benefits test for at least 70 percent of non-highly compensated or highly compensated employees.
In light of these points, certain eligible plans, sponsored by an employer that is a commercial passenger airline or a business providing catering services for a commercial passenger airline, are allowed to elect a 17-year amortization of the plan's unfunded liability.
Further, a plan that does not meet the benefit accrual and benefit increase restrictions allowed for the 17-year amortization may elect to use a 10-year amortization period for the first taxable year beginning in 2008.
The reforming provisions enacted under the Pension Protection Act of 2006 are sweeping and complex. A complete listing of all provisions of the Act is available for your review. You may need to download the Adobe Reader to view this listing.