PPA Delivers Good News for Cash Balance and Other Hybrid Plans
The Pension Protection Act clarifies — primarily prospectively — that cash balance and other
hybrid defined benefit plans are not inherently age discriminatory. The act clarifies the age-discrimination
standard for defined benefit plans in general and establishes new rules for
“applicable defined benefit plans.” IRS Finalizes Heinz Anti-Cutback Regulations
The IRS has issued final anti-cutback regulations that adopt the U.S. Supreme Court’s ruling in
Central Laborers’ Pension Fund v. Heinz. In that case, the court ruled that ERISA’s anti-cutback
rule prohibits any change to a pension plan’s suspension-of-benefits rules that would reduce
benefits for employees who continued working after retirement (see Watson Wyatt Insider,
August 2004). PPA Establishes New Rules for Multiemployer Plans
The Pension Protection Act of 2006 imposes new rules on multiemployer plans, including
shorter amortization periods for many liabilities, more stringent requirements for underfunded
plans in endangered or critical status, and more demanding disclosure requirements. The
changes, which generally take effect in 2008, will affect contributing employers, plan trustees,
participants and beneficiaries. Ten Key Points About the SEC’s New Disclosure Rules
On August 11, 2006, the Securities and Exchange Commission published 436 pages of executive
compensation proxy disclosure rules. Companies must comply with those rules in their proxy
statements for fiscal years ending on or after December 15, 2006. IBM Plaintiffs’ Request for Rehearing Denied
The request of plaintiffs in the Cooper v. IBM case for a rehearing by the entire Seventh
Circuit Court of Appeals has been denied. (The appeals court recently ruled that hybrid
plans are not inherently age-discriminatory; see Watson Wyatt Insider, August/September
2006.) In a one-page order, the court noted that all three of the judges who heard the case
voted to deny rehearing, and none of the other judges on the circuit requested a vote on
the petition. IRS Delays Effective Date for 403(b) Regulations
The IRS has delayed the general effective date for the regulations regarding section
403(b) arrangements that were proposed in 2004 (including the related controlled group
regulations under section 414(c)). IRS Finalizes 404(k) Regulations on Deductions for ESOP Payments
The IRS has finalized part of the regulations proposed last year under section 404(k)
concerning the deduction for dividends paid on employer securities held by an employee
stock ownership plan (ESOP). Under the final regulations, payments that redeem
employer securities in an ESOP should not be treated as dividends for purposes of section
404(k) and are not deductible. Governmental “Pick-Up” Plans Require Formal Adoption
In Revenue Ruling 2006-43, the IRS clarifies the designation required by an employing
governmental unit in order to “pick up” employee contributions. In a pick-up plan, the
Code allows governmental employers to “pick up” mandatory employee contributions,
which are then treated as nontaxable employer contributions instead of taxable employee
contributions. EEOC Proposes Regulatory Changes Recognizing General Dynamics v. Cline
The Equal Employment Opportunity Commission (EEOC) has proposed regulations
revising its position on the Age Discrimination in Employment Act (ADEA) and
discrimination against younger workers. The revisions respond to the Supreme Court’s
decision in General Dynamics v. Cline, which interpreted the ADEA as permitting
employers to favor older workers over younger workers. The revisions are mostly
clarifications and minor changes to the text.
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