The following information is complied from The Pension Protection Act of 2006.  This document highlights many aspects pertaining to financial planning for individual and business.  As we research the Act further over the coming weeks, this site will develop the details further.  We will highlight how the Act will affect company retirement plans first.  We encourage you to use this information to gain a top-line understanding of some of the more significant changes that may affect you and/or your business.  We would also suggest that you learn about new and continued incentives for employees to participate in their employers’ plans.  Then determine the timeframe for the changes and the impact on your organization and retirement plans.

For more details on the Act’s changes that are highlighted on this page, and effective dates work with your tax consultant and read the original document at the following link.  We look forward to demonstrating our ongoing commitment to your needs. Visit  www.house.gov for a 386 page technical explanation of the Act from the Joint Committee on Taxation.

This general overview is provided for information purposes only and is not intended as, nor can it be relied on as legal or tax advice. If such advice is requested, please consult with your legal or tax adviser.

Auto enrollment

For the first time, statutory authority for Eligible Automatic Contribution Arrangements is provided. If a plan chooses an auto enrollment feature, enrollment is automatic for new employees unless an employee opts-out.  ERISA pre-emption of state anti-garnishment laws (provided certain conditions are met).  Changes are effective for plan years beginning after December 31, 2007, however ERISA anti-garnishment pre-emption effective date is August 17, 2006.

Default Investment Options

Provided certain conditions are satisfied, employers will enjoy 404(c) relief for choosing default investments.  FYI, 404(c) reduces an employers liability for selection of investment options if the employer makes available the prescribed asset classes.  The Department of Labor will issue guidelines on default investments within 6 months of August 17, 2006.  Changes for default investment options are effective for plan years after 2006.

Investment Advice

Fiduciary advisers, including non-independent fiduciary advisers, can give participants investment advice provided certain conditions are met.  These provisions are effective for investment advice given after December 31, 2006.

Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) incentives

In virtually every area, increased contribution limits are made permanent.  Changes are effective as of August 17, 2006. Roth 401(k), which was effective January 1, 2006, is now permanent.

DB(k) Plans –Defined Benefit/401(k) plans

DB(k)s are a new type of plan: a combination defined benefit and a 401(k) plan for employers with 500 or fewer employees.  Each component must meet its respective ERISA and Internal Revenue Code requirements.  DB(k)s are effective for plan years beginning after December 31, 2009.

Mapping

Added protection for fiduciaries that map participants’ accounts.  FYI, mapping comes into play when an employer switches investment providers and the employer transfers employees’ assets to the new investment provider.   Mapping occurs when assets goes from one asset class to a similar asset class.  Mapping is effective for plan years beginning after 2007.

Non-spouse beneficiaries

Changes are effective as of August 17, 2006.  For hardship distributions, the Act mandates that the Treasury Department expand the definition of hardship to include hardship withdrawals to meet expenses of the participant’s beneficiary under the plan. Plans are permitted but not required to take advantage of these liberalized rules.  The Treasury will issue the expanded hardship withdrawal rules within 180 days after the Act’s date of enactment, August 17, 2006.  The non-spouse beneficiary rollover rules are effective after January 1, 2007.

New diversification rules

Plans are limited in their ability to require participant investment in the plan sponsor’s publicly-traded securities.  Participants must be able to diversify employee contributions immediately. Those with 3 or more years of service must be permitted to diversify employer contributions. Generally, the changes are effective for plan years beginning after December 31, 2006.

Distributions to certain military/public service groups

Penalty tax relief for certain distributions to military and public safety personnel.  After active service ends, active duty participants will have up to two years to re-contribute the amounts they withdrew and receive a refund for taxes paid.

Direct rollovers from retirement plans to Roth IRAs

A direct rollover from a qualified retirement plan to a Roth IRA is allowed for those who meet the present law requirements for rollovers from a traditional IRA into a Roth IRA.  This is effective after December 31, 2007.

Accelerated vesting

Plans must ensure that their employer contributions vest at an accelerated rate.  At the minimum, plans must have 3-year cliff vesting or 6-year graded vesting.  Changes are generally effective for contributions made for plan years beginning after 2006.

Periodic benefit statements

Participant-directed plans must issue quarterly statements.  This is generally effective for plan years beginning after 2006.  The Department of Labor is required to develop model benefit statements by August 17, 2007.  The participant or beneficiary may use electronic statements if reasonably accessible.

Distributions

Distributions may be made from a pension plan when a participant turns 62.

Saver’s Credit

Families with modest incomes will continue to benefit from this tax advantage.  Effective as of August 17, 2006.

Compliance