HOW TO BE A HERO TO YOUR CLIENTS WITH THE PENSION PROTECTION ACT OF 2006

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HOW TO BE A HERO TO YOUR CLIENTS WITH THE
PENSION PROTECTION ACT OF 2006
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TODAYS SPEAKERS
Aaron Karr, APA Pension Consultant
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TODAYS SPEAKERS
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PENSION PROTECTION ACT OF 2006(And other recent
law changes)
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PENSION PROTECTION ACT OF 2006(And other recent
law changes)
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PENSION PROTECTION ACT OF 2006(And other recent
law changes)
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PENSION PROTECTION ACT OF 2006(And other recent
law changes)
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QUARTERLY NOTICES REQUIRED

• What information is included in the notice?
• The vesting schedule
• An explanation of permitted disparity, if
  applicable
• Any restrictions on the sources of money the
  participant can self direct (i.e. employee money
  is self directed but employer money is not)
• A statement provided by the DOL about the
  importance of diversifying assets
• The DOLs website address
• When does the notice have to be provided for
  2007?
• May 15, 2007
• August 14, 2007
• November 14, 2007
• February 14, 2008
• The requirement is that the notice is provided to
  all participants and beneficiaries
• 45 days after each calendar quarter, regardless
  of the plan year!

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NEW OPPORTUNITIES WITH PPA 2006

• For Principals in DB plan, added opportunity to
  increase contributions through companion 401(k)
  PS Plan.
• New 6 or 25 Additional Limit is ideal for
  Companion Safe Harbor Matching 401(k) Plans or
  Tiered Profit Sharing Plans and started in 2006!
• 404(c) Protection for Plan Sponsors under pooled
  investment programs.
• New Investment Rules, Procedures and choices
  under PPA 2006.
• Rollovers by Non-Spouse Beneficiaries to their
  own IRAs.
• Sunset Pension Provisions are now permanent. Can
  continue larger funding and benefit amounts
  previously allowed only through 2010.
• Automatic Enrollments in 401(k) Plans a bad
  idea for most smaller plans.

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AUTOMATIC ENROLLMENT

• Erroneous Contributions
• Effective for 2008 Plan Year
• Employee elects within 90 days to say oops
• Must be distributed by the following April 15
• Amounts not subject to penalty or used in testing
• Amounts treated as taxable compensation

Yes, you can change your mind.
Better approach if all you want to do is allow
favored employees to defer
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MULTIPLE-MATCH 401(k) PLANSTURN THIS

• Since Average Deferrals of rank-and-file are
  3.57 of Pay, the Principals can only defer 5.57
  of Pay or 12,532.50 each.

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INTO THIS

• Total Deferrals and Matches for Principals
  95,000
• Total Matches for all others 9,727
• Percentage to Principals 91
• Note Matches 2 and 3 are subject to a 6-year
  graded vesting schedule.

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MULTIPLE-MATCH 401(k) PROGRAM
Under this program, there are three matches

• A Safe Harbor Dollar-For-Dollar match limited to
  4 of the deferring Participants compensation
  100 immediately vested.
• A Discretionary Dollar-For-Dollar match also
  limited to 4 of the deferring Participants
  compensation subject to a 6-year graded vesting
  schedule if the Participant leaves before six
  years, they would forfeit all or a portion of
  this match.
• A Fixed match of 0.85 for each dollar deferred
  and limited to deferrals of 6 of compensation
  subject to the same 6-year graded vesting
  schedule.
• Note Figures quoted are based on
  Principal receiving at least 225,000 of Income
  for Plan purposes.

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Combination Principal and Spouse Maximum Profit
Sharing and 401(k) Programs Where There Are No
Common-Law Employees TURNS THIS

• FOR PLAN YEAR BEGINNING 1/1/2007

Note In all instances Employee deferrals must
be made before the end of the year. Employer
Contributions can be made up to the date of the
extended tax return.
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Combination Principal and Spouse Maximum Profit
Sharing and 401(k) Programs Where There Are No
Common-Law Employees INTO THIS

• FOR PLAN YEAR BEGINNING 1/1/2007

Note In all instances Employee deferrals must
be made before the end of the year. Employer
Contributions can be made up to the date of the
extended tax return.
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Combination Principal and Spouse (50) Maximum
Profit Sharing and 401(k) Programs Where There
Are No Common-Law Employees TURNS THIS

• FOR PLAN YEAR BEGINNING 1/1/2007

Note In all instances Employee deferrals must
be made before the end of the year. Employer
Contributions can be made up to the date of the
extended tax return.
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Combination Principal and Spouse (50) Maximum
Profit Sharing and 401(k) Programs Where There
Are No Common-Law Employees INTO THIS

• FOR PLAN YEAR BEGINNING 1/1/2007

Note In all instances Employee deferrals must
be made before the end of the year. Employer
Contributions can be made up to the date of the
extended tax return.
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All Combination DB and DC Plans Effective in
2007 and Laterwith Safe Harbor and Flat Profit
Sharing Allocation
NOTE The Defined Benefit Plan is not covered by
PBGC.
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All Combination DB and DC Plans Effective in
2007 and Laterwith Tiered Profit Sharing
Allocation
6.87 of Compensation each to Principal
Spouse, 2.26 to all others NOTE The Defined
Benefit Plan is not covered by PBGC.
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Certain Combination DB and DC Plans Effective in
2008
NOTE Prior to PPA 2006, only a Defined Benefit
Plan was allowed. The Principal and Spouse
received 312,733. After PPA 2006, Principal and
Spouse now receive 407,733. These plans are
available only if the Defined Benefit Plan is
subject to PBGC.
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Husband and Wife Combination Plans Effective 2007
and On
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PARTICIPANT STATEMENTS
Required Diversification Language DOL
Website To help achieve long-term retirement
security, you should give careful consideration
to the benefits of a well-balanced and
diversified investment portfolio. Spreading your
assets among different types of investment can
help you achieve a favorable rate of return,
while minimizing your overall risk of losing
money. This is because market or other economic
conditions that cause one category of assets, or
one particular security, to perform very well
often cause another asset category, or another
particular security, to perform poorly If you
invest more than 20 of your retirement savings
in any one company or industry, your savings may
not be properly diversified. Although
diversification is not a guarantee against loss,
it is an effective strategy to help you manage
investment risk.
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PARTICIPANT STATEMENTS
Required Diversification Language DOL Website
(cont.) In deciding how to invest your
retirement savings, you should take into account
all of your assets, including any retirement
savings outside of the Plan. No single approach
is right for everyone because, among other
factors, individuals have different financial
goals, different time horizons for meeting their
goals, and different tolerances for risk. It is
also important to periodically review you
investment portfolio, your investment objectives,
and the investment options under the Plan to help
ensure that your retirement savings will meet
your retirement goals. www.dol.gov/ebsa/regs/fab_
2006-3.html
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INVESTMENT ADVICE

• New Prohibited Transaction Exemption
• Effective for advice given after 12/31/2006
• Eligible Investment Advice Arrangement
• Fees do not vary based on selected investments
• Or use a computer model to provide advice
• Independent fiduciary must approve the agreement
• Disclosure to participants on fee arrangement

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DEFAULT INVESTMENTS
No Investment Elections? -- Relief is Coming!

• Effective 2007 Plan Year
• DOL has provided proposed regulations for
  fiduciary relief
• Making investment options for participants
• New acronym QDIA!
• (Qualified Default Investment Alternative)

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DEFAULT INVESTMENTS6 Conditions For Fiduciary
Relief

• Plan must have a QDIA and participants must be
  invested in it
• Participants must have been given an opportunity
  to direct their investments but failed to do so
• Participants must be furnished with a notice
  about the QDIA
• Participants invested in the QDIA must be
  furnished with materials relating to it
• Must be afforded an opportunity to transfer or
  exchange out of the QDIA no financial penalties
  for doing so
• The plan must offer a broad range of investment
  alternatives that taken together, allow the
  participant to build a portfolio with appropriate
  risk/return characteristics

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SOWHAT IS A QDIA?5 Basic Requirements

• Must be an investment company or investment
  manager registered under the ICA of 1940 (mutual
  fund, bank, insurance company, etc.)
• It must be diversified so as to minimize the risk
  of large losses, and must be designed to meet 1
  of 3 alternative designs
• A. Age, target retirement date, life expectancy
  
• B. Balanced fund or portfolio
• C. Investment management service
• Generally must not be invested in employer
  securities
• Participants must be able to transfer assets out
  of the QDIA at least once every three months
  without financial penalties
• The plan must offer a broad range of investment
  alternatives
• (i.e. 3 alternatives each of which is
  diversified and have different risk/return
  characteristics)

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THANK YOU FOR YOUR PARTICIPATION !