The big news in June was the passage of highly anticipated pension funding relief, although several provisions related to defined contribution plans, such as enhanced fee disclosure, were not included. Also in June, the Department of Labor (DOL) released regulations clarifying issues related to qualified domestic relations orders (QDROs). The DOL, the Department of Health and Human Services (HHS) and the Treasury Department issued regulations related to, among other things, the prohibition of annual benefit limits and preexisting condition exclusions under the Patient Protection and Affordable Care Act.
Also, plan sponsors wishing to take advantage of tax relief for spinning off a plan covering participants in Puerto Rico must act by the end of the year. In the courts, the U.S. Supreme Court agreed to hear a case related to a plan sponsor’s failure to disclose information about a plan change to participants. In addition, a district court dismissed another pre-Pension Protection Act (pre-PPA) cash balance case.
Pension Funding Relief Passed
President Obama signed the Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act, which makes pension funding relief available for defined benefit plan sponsors. As noted in the April 2010 BAC Bulletin discussion of pension funding relief:
Plan sponsors may elect either a 2+7 amortization (with the first two years being interest only) or a 15-year amortization for up to two of the 2008 through 2011 plan years.
Plan sponsors that take advantage of this funding relief must increase plan contributions during a restricted period under the so-called cash-flow rule if the sponsor pays excess compensation, declares extraordinary dividends or engages in certain stock redemptions. The contribution increase under the cash-flow rule is limited to the reduction in contribution requirements otherwise created by the election of funding relief.
The act provides a lookback to help plan sponsors avoid the restriction on benefit accruals for plans that are less than 60% funded and avoid restrictions on Social Security leveling options for plans that are less than 80% funded. This relief provision is only for 2010.
Insight: The higher contributions resulting from the cash-flow rule can limit the relief provided and can also have a profound impact on executive compensation programs. The act does not include enhanced disclosure requirements for defined contribution arrangements or additional 4010 reporting requirements. Plan sponsors should contact their Towers Watson actuary to determine how the new relief affects their defined benefit plans.
The Preservation of Access to Care for Medicare Beneficiaries and Pension Relief Act can be found here. Towers Watson’s Client Advisory on the act can be found here.
In Lafayetta, LA contact Andrew Ahrems at:
http://www.ahrensinvptr.com/new/ahrensinvptr/
