DESCRIPTION OF THE “PENSION PROTECTION 

TECHNICAL CORRECTIONS ACT OF 2007” 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

August 3, 2007 

JCX-60-07 
i

CONTENTS

Page

INTRODUCTION .......................................................................................................................... 1 

I. AMENDMENTS RELATED TO TITLE I OF THE ACT: REFORM OF FUNDING 

RULES FOR SINGLE-EMPLOYER DEFINED BENEFIT PENSION PLANS................ 2 

A. Minimum Funding Standards (Act secs. 101 and 111)................................................... 2 

B. Funding Rules for Single-Employer Defined Benefit Plans (Act secs. 102 and 112).... 2 

C. Benefit Limitations under Single-Employer Plans (Act secs. 103 and 113) .................. 3 

D. Technical and Conforming Amendments (Act secs. 107 and 114) ................................ 3 

E. Restrictions on Funding of Nonqualified Deferred Compensation Plans by 

Employers Maintaining Underfunded or Terminated Single-Employer Plans 

(Act sec. 116 and Code sec. 409A(b)(3)(A)(ii))............................................................. 4 

II. AMENDMENTS RELATING TO TITLE II OF THE ACT: FUNDING RULES FOR 

MULTIEMPLOYER DEFINED BENEFIT PLANS ............................................................ 5 

A. Funding Rules for Multiemployer Defined Benefit Plans (Act secs. 201 and 211) ....... 5 

B. Funding Rules for Multiemployer Plans in Endangered or Critical Status 

(Act secs. 202 and 212)................................................................................................... 5 

III. AMENDMENTS RELATED TO TITLE III OF THE ACT: INTEREST RATE 

PROVISIONS........................................................................................................................ 7 

A. Extension of Replacement of 30-Year Treasury Rates (Act sec. 301) ........................... 7 

IV. AMENDMENTS RELATED TO TITLE IV OF THE ACT: PBGC GUARANTEE 

AND RELATED PROVISIONS ........................................................................................... 8 

A. Missing Participants (Act sec. 410) ................................................................................ 8 

V. AMENDMENTS RELATED TO TITLE V OF THE ACT: DISCLOSURE ....................... 9 

A. Defined Benefit Plan Funding Notice and Disclosure of Withdrawal Liability 

(Act sec. 501 and ERISA sec. 101(f))............................................................................. 9 

B. Access to Multiemployer Pension Plan Information (Act sec. 502 and ERISA 

secs. 101(k), 101(l), and 4221(e))................................................................................... 9 

C. Disclosure of Termination Information to Plan Participants (Act sec. 506 and 

ERISA sec. 4041 and 4042)............................................................................................ 9 

D. Periodic Pension Benefit Statements (Act sec. 508 and ERISA sec. 209(a))............... 10 

E. Notice to Participants or Beneficiaries of Blackout Periods (Act sec. 509 and 

ERISA sec. 101(i)(8)(B)).............................................................................................. 10 
ii

VI. AMENDMENTS RELATED TO TITLE VI OF THE ACT: INVESTMENT ADVICE, 

PROHIBITED TRANSACTIONS, AND FIDUCIARY RULES ....................................... 11 

A. Prohibited Transaction Rules Relating to Financial Investments (Act sec. 611, 

ERISA sec. 408(b)(18)(C), and Code sec. 4975(d)(21)(C))......................................... 11 

B. Inapplicability of Relief from Fiduciary Liability During Suspension of Ability of 

Participant or Beneficiary to Direct Investments (Act sec. 621 and ERISA 

sec. 404(c)).................................................................................................................... 11 

VII. AMENDMENTS RELATING TO TITLE VII OF THE ACT: BENEFIT ACCRUAL 

STANDARDS...................................................................................................................... 12 

A. Benefit Accrual Standards (Act sec. 701)..................................................................... 12 

VIII. AMENDMENTS RELATED TO TITLE VIII OF THE ACT: PENSION RELATED 

REVENUE PROVISIONS .................................................................................................. 14 

A. Deduction Limitations (Act secs. 801 and 803)............................................................ 14 

B. Improvements in Portability, Distributions, and Contribution Rules (Act sec. 829).... 14 

C. Health and Medical Benefits (Act secs. 841 and 845).................................................. 15 

D. United States Tax Court Modernization (Act secs. 854 and 856) ................................ 16 

IX. AMENDMENTS RELATING TO TITLE IX OF THE ACT: INCREASE IN PENSION 

PLAN DIVERSIFICATION AND PARTICIPATION AND OTHER PENSION 

PROVISIONS...................................................................................................................... 17 

A. Defined Contribution Plans Required to Provide Employees with Freedom to 

Invest Their Plan Assets (Act sec. 901 and Code sec. 401(a)(35)(E)) ......................... 17 

B. Increasing Participation through Automatic Contribution Arrangements 

(Act sec. 902 and Code sec. 414(w)) ............................................................................ 17 

C. Treatment of Eligible Combined Defined Benefit Plans and Qualified Cash or 

Deferred Arrangements (Act sec. 903, Code sec. 414(x)(1), and ERISA 

sec. 210(e)).................................................................................................................... 18 

X. AMENDMENTS RELATING TO TITLE X OF THE ACT: SPOUSAL PENSION 

PROTECTION PROVISIONS ............................................................................................ 19 

A. Extension of Tier II Railroad Retirement Benefits to Surviving Former Spouses 

(Act sec. 1003).............................................................................................................. 19

XI. AMENDMENTS RELATING TO TITLE XI OF THE ACT: ADMINISTRATIVE 

PROVISIONS...................................................................................................................... 20 

A. No Reduction in Unemployment Compensation as a Result of Pension Rollovers 

(Act sec. 1105).............................................................................................................. 20
iii

XII. AMENDMENTS RELATING TO TITLE XII OF THE ACT: PROVISIONS 

RELATING TO EXEMPT ORGANIZATIONS................................................................. 21 

A. Tax-Free Distributions from Individual Retirement Plans for Charitable Purposes 

(Act. Sec. 1201 and Code sec. 408(d)(8)(D)) ............................................................... 21 
1 

INTRODUCTION 

This document,1 prepared by the staff of the Joint Committee on Taxation, provides a 

description of the “Pension Protection Technical Corrections Act of 2007,” as introduced on 

August 2, 2007, in the Senate as S. 1974 and on August 3, 2007, in the House of Representatives 

as H.R. 3361. 

The bill contains technical corrections relating to titles I through XII of the Pension 

Protection Act of 2006 (Pub. L. No. 109-280), referred to as “the Act.” Unless otherwise 

indicated, the provisions of the bill are effective as if included in the provision of the Pension 

Protection Act to which they relate. In addition to the provisions described in this document, the 

bill also contains clerical and conforming changes. 

 1

 This document may be cited as follows: Joint Committee on Taxation, Description of the 

“Pension Protection Technical Corrections Act of 2007” (JCX-60-07), August 3, 2007. This document is 

also available at www.house.gov/jct. 
2 

I. AMENDMENTS RELATED TO TITLE I OF THE ACT: 

REFORM OF FUNDING RULES FOR SINGLE-EMPLOYER 

DEFINED BENEFIT PENSION PLANS 

A. Minimum Funding Standards

(Act secs. 101 and 111) 

Prohibition on increases in benefits while a waiver is in effect (ERISA sec. 302(c)(7)(A) and 

Code sec. 412(c)(7)(A)) 

The Act restates the prior-law provision prohibiting plan amendments that increase 

benefits while a waiver or amortization extension is in effect or if a retroactive amendment was 

previously made within a certain period. As under prior law, an exception applies for a plan 

amendment increasing benefits that only repeals a previously made retroactive amendment. The 

provision provides that the references to retroactive amendments is limited to those that reduced 

accrued benefits. 

Minimum funding standards (ERISA sec. 302(d)(1) and Code sec. 412(d)(1))

Under the Act, the Secretary of the Treasury must approve a change in a plan’s funding 

method, valuation date, or a plan year. The provision deletes the reference to valuation date 

because a change in such date is a change in the plan’s funding method. 

B. Funding Rules for Single-Employer Defined Benefit Plans 

(Act secs. 102 and 112) 

Determination of at-risk status (ERISA sec. 303(i)(4)(B) and Code sec. 430(i)(4)(B))

Under the Act, the 80-percent and 70-percent prongs of the at-risk status definition are 

based on funded status for the preceding plan year. The Act provides that determination of the 

70-percent prong for 2008 may be determined using methods of estimation provided by the 

Secretary of Treasury. The provision applies this rule also for purposes of the 80-percent prong 

(as phased in under the Act). 

Quarterly contributions (ERISA sec. 303(j)(3)) and Code sec. 430(j)(3))

Under the Act, quarterly contributions are required if a plan has a funding shortfall for the 

preceding year. The provision includes a transition rule for the 2008 plan year; under this rule, 

in the case of plan years beginning in 2008, the funding shortfall for the preceding plan year may 

be determined using such methods of estimation as the Secretary of the Treasury may provide. 

The quarterly installment rules require a higher rate of interest to be charged on required 

contributions. Small plans are permitted to use a valuation date other than the first day of the 

plan year. The provision provides that the Secretary of the Treasury is to prescribe rules relating 

to interest charges and credits in the case of a plan with a valuation date other than the first day 

of the plan year. 
3 

C. Benefit Limitations under Single-Employer Plans 

(Act secs. 103 and 113) 

Definition of prohibited payment (ERISA sec. 206(g)(3)(E) and Code sec. 436(d)(5))

The Act provides that certain underfunded plans may not make prohibited payments, 

which include accelerated forms of distribution such as lump sums. Present law provides that if 

the present value of a participant’s vested benefit exceeds $5,000,2

 the benefit may not be 

distributed without the participant’s consent. If the vested benefit is less than or equal to this 

amount, the consent requirement does not apply. The provision provides that the payment of 

benefits that may be immediately distributed without the consent of the participant is not a 

prohibited payment. 

Small plans (ERISA sec. 206(g)(10) and Code sec. 436(k)) 

The benefit restriction provisions are based upon a plan’s adjusted funding target 

attainment percentage as of the first day of the plan year. This presents issues for small plans, 

which are allowed to designate any day of the plan year as their valuation date, because a plan's 

adjusted funding target attainment percentage cannot be determined until valuation date. The 

provision provides that the Secretary of the Treasury may prescribe rules for the application of 

the benefit restrictions which are necessary to reflect the alternate valuation date. 

Notice requirement (Act sec. 103(b) and ERISA sec. 101(j))

The provision provides that the Secretary of the Treasury, in consultation with the 

Secretary of Labor, has the authority to prescribe rules applicable to the notice of funding-based 

limitations on distributions required under section 101(j) of ERISA as added by the Act.

Definition of single employer plan (Code sec. 436(l))

The Act provides rules under ERISA and the Code that limit the benefits and benefit 

accruals that can be provided under a single employer plan, depending on the funding level of 

the plan. The provision adds a definition of the term “single employer plan” for purposes of the 

limitations in the Code. 

D. Technical and Conforming Amendments 

(Act secs. 107 and 114) 

The Act provides for technical and conforming amendments to reflect the new funding 

rules. The provision provides that the effective date for the amendments to the excise tax on a 

failure to satisfy the funding rules is taxable years beginning after 2007 and, for the other 

technical and conforming amendments, plan years beginning after 2007. 

 2

 The portion of a participant’s benefit that is attributable to amounts rolled over from another 

plan may be disregarded in determining the present value of the participant’s vested benefit. 
4 

E. Restrictions on Funding of Nonqualified Deferred Compensation Plans by 

Employers Maintaining Underfunded or Terminated Single-Employer Plans 

(Act sec. 116 and Code sec. 409A(b)(3)(A)(ii)) 

The Act provides that if, during any restricted period in which a defined benefit pension 

plan of an employer is in at-risk status, assets are set aside (directly or indirectly) in a trust (or 

other arrangement as determined by the Secretary of the Treasury), or transferred to such a trust 

or other arrangement, for purposes of paying deferred compensation of an applicable covered 

employee, such assets are treated as property transferred in connection with the performance of 

services (whether or not such assets are available to satisfy the claims of general creditors) under 

Code section 83. 

The Act further provides that if a nonqualified deferred compensation plan of an 

employer provides that assets will be restricted to the provision of benefits under the plan in 

connection with a restricted period (or other similar financial measure as determined by the 

Secretary of the Treasury) of any defined benefit pension plan of the employer, or assets are so 

restricted, such assets are treated as property transferred in connection with the performance of 

services (whether or not such assets are available to satisfy the claims of general creditors) under 

Code section 83. The provision provides that this rule applies with respect to assets that are 

restricted under the plan with respect to a covered employee. 
5 

II. AMENDMENTS RELATING TO TITLE II OF THE ACT: 

FUNDING RULES FOR MULTIEMPLOYER DEFINED 

BENEFIT PLANS 

A. Funding Rules for Multiemployer Defined Benefit Plans 

(Act secs. 201 and 211) 

Shortfall funding method (Act sec. 201(b))

The Act provides that a multiemployer plan meeting certain criteria may adopt, use or 

cease using the shortfall funding method and such adoption, use, or cessation of use is deemed to 

be approved by the Secretary of the Treasury. One of the criteria is that "the plan has not used 

the shortfall funding method during the 5-year period ending on the day before the date the plan 

is to use the method” under the Act. The provision changes this so that the criterion is that "the 

plan has not adopted or ceased using the shortfall funding method during the 5-year period 

ending on the day before the date the plan is to use the method” under the Act. 

B. Funding Rules for Multiemployer Plans in Endangered or Critical Status 

(Act secs. 202 and 212) 

Notice requirements (ERISA secs. 305(b)(3)(D), 305(e)(8)(C), and Code secs. 432(b)(3)(D), 

432(e)(8)(C)) 

The Act requires the plan sponsor of a multiemployer plan to distribute a notice if the 

plan is in endangered or critical status and if the plan is required to make reductions to adjustable 

benefits. The provision clarifies that the Secretary of the Treasury, in consultation with the 

Secretary of Labor, shall provide guidance with respect to the plan sponsor’s notice obligations. 

Implementation and enforcement of default schedule (ERISA secs. 305(c)(7), 305(e)(3)(C), 

and Code secs. 432(c)(7), 432(e)(3)(C)) 

Under the Act, a default schedule applies if a funding improvement plan or rehabilitation 

plan is not timely adopted. The provision removes the rule that provides that the default 

schedule is implemented upon the date on which the Department of Labor certifies that the 

parties are at impasse. Thus, under the provisions, the plan trustees are required to implement 

the default schedule within 180 days of the expiration date of the collective bargaining 

agreement. In addition, the provision clarifies that any failure to make a default schedule 

contribution is enforceable under sec. 515 of ERISA. 

Restriction on payment of lump sums while plan is in critical status (ERISA sec. 

305(f)(2)(A) and Code sec. 432(f)(2)(A))

Under the Act, the payment of accelerated forms of payment, including lump sums, while 

a plan is in critical status is restricted. Under the provision, the restriction on payment of 

accelerated forms of payment applies only to participants whose benefit commencement date is 

after notice of the plan’s critical status is provided. This change conforms the rule for 

multiemployer plans to the rule applicable to single-employer plans. 
6 

Definition of plan sponsor (Code sec. 432(i)(9))

The funding rules for multiemployer plans and the excise tax rules that apply in the event 

of a failure to comply with the funding rules refer to the term “plan sponsor.” This term is not 

defined in the Code. The provision adds a definition to the Code that conforms with the 

applicable ERISA definition. 

Excise tax on trustees for failure to adopt a timely rehabilitation plan (Code sec. 4971(g)(4))

The Act imposes an excise tax on the sponsor of a multiemployer plan in the event of a 

failure to timely adopt a rehabilitation plan. Under the Act, the plan sponsor has a 240 day 

period in which it must adopt a plan. The excise tax for failure to timely adopt is based on the 

beginning of this 240 day period, rather than the end of the period. The provision revises the 

calculation of the excise tax so that it applies to the period beginning on the due date for adoption 

of the rehabilitation plan. 

Effective date of excise tax provisions (Act sec. 212(e))

The Act provides that the excise tax provisions relating to a failure to satisfy the 

multiemployer plan funding rules are effective with respect to plan years beginning after 2007. 

The provision clarifies that the excise tax provisions are effective with respect to taxable years 

beginning after 2007. 
7 

III. AMENDMENTS RELATED TO TITLE III OF THE ACT: 

INTEREST RATE PROVISIONS 

A. Extension of Replacement of 30-Year Treasury Rates 

(Act sec. 301) 

The Pension Funding Equity Act of 2004 provided for a temporary interest rate. The 

Pension Funding Equity Act of 2004 also provided that, if certain requirements were satisfied, 

plan amendments to reflect such interest rate did not need to be made before the last day of the 

first plan year beginning on or after January 1, 2006. The Act extended the temporary interest 

rate through 2007 and also extended the required amendment date by changing “January 1, 

2006” to “January 1, 2008.” The provision further extends the required amendment date to 

conform generally to the amendment period permitted under the Act. 
8 

IV. AMENDMENTS RELATED TO TITLE IV OF THE ACT: 

PBGC GUARANTEE AND RELATED PROVISIONS 

A. Missing Participants 

(Act sec. 410) 

Plans covered by missing participant program (ERISA sec. 4050(d))

The Act extended the prior-law missing participant program to terminating 

multiemployer plans and to certain plans not subject to the PBGC termination insurance 

program. Under the provision, the missing participant program applies to plans that have at no 

time provided for employer contributions. In addition, the provision limits the program to 

qualified plans. 
9 

V. AMENDMENTS RELATED TO TITLE V OF THE ACT: 

DISCLOSURE 

A. Defined Benefit Plan Funding Notice and Disclosure of Withdrawal Liability 

(Act sec. 501 and ERISA sec. 101(f)) 

Under the Act, the administrator of a single employer or a multiemployer defined benefit 

plan must provide an annual plan funding notice (section 101(f) of ERISA). The provision 

conforms the measurement dates of several of the items that must be included in the notice and 

also conforms the information that must be provided by the administrator of a multiemployer 

plan with respect to the assets and liabilities of the plan to the information that must be provided 

by the administrator of a single employer plan. 

B. Access to Multiemployer Pension Plan Information 

(Act sec. 502 and ERISA secs. 101(k), 101(l), and 4221(e)) 

Under the Act, the administrator of a multiemployer plan is required to provide 

participants and employers copies of certain financial reports prepared by an investment 

manager, advisor or other fiduciary, upon request (section 101(k) of ERISA). However, the 

administrator is prohibited from disclosing "any individually identifiable information regarding 

any plan participant, beneficiary, employee, fiduciary, or contributing employer.” The provision 

clarifies that this prohibition does not prevent the plan from disclosing the identities of the 

investment managers and advisors whose performance is being reported on or evaluated. 

Under the Act, the plan sponsor or administrator of a multiemployer plan must provide 

upon an employer’s request certain information regarding the employer’s withdrawal liability 

with respect to the plan (section 101(l) of ERISA). The provision repeals section 4221(e) of 

ERISA, which also requires the disclosure upon an employer’s request information relating to 

the employer’s withdrawal liability. 

C. Disclosure of Termination Information to Plan Participants 

 (Act sec. 506 and ERISA sec. 4041 and 4042) 

In the case of an involuntarily termination of a plan, the Act requires the plan sponsor (or 

administrator) and the PBGC to disclose certain information to affected parties, and special rules 

apply with respect to the disclosure of confidential information by the plan sponsor (or 

administrator). Under the provision, these special rules relating to the disclosure of confidential 

information also apply to the PBGC. 

Under the Act, the plan administrator must provide affected parties with certain 

information that it has provided to the PBGC. The provision clarifies that this information 

includes information that the plan administrator is required to disclose to the PBGC at the time 

the written notice of intent to terminate is given as well as information the plan administrator is 

required to disclose to the PBGC after the notice of intent to terminate is given. 
10 

D. Periodic Pension Benefit Statements 

(Act sec. 508 and ERISA sec. 209(a)) 

The Act revises the rules that apply under ERISA with respect to a plan administrator’s 

obligation to provide periodic information relating to a participant’s accrued benefits under a 

plan (section 105 of ERISA). The provision makes conforming changes to section 209 of 

ERISA, which also imposes recordkeeping and reporting obligations with respect to participant 

benefits. 

E. Notice to Participants or Beneficiaries of Blackout Periods 

(Act sec. 509 and ERISA sec. 101(i)(8)(B)) 

The Sarbanes-Oxley Act of 2002 amended ERISA to require that participants and 

beneficiaries of an individual account plan be provided advance notice of a blackout period 

during which certain plan operations, such as the ability to make investment changes, will be 

restricted. The notice requirement does not apply to one-participant plans. The Act amended the 

definition of one-participant plan to conform to Department of Labor regulations. The Act, 

however, did not provide complete conformity with those regulations. The provision amends the 

Act so that the definition of one-participant plan for purposes of the notice is in conformity with 

Department of Labor regulations. Under the provision, a one-participant plan means a retirement 

plan that on the first day of the plan year: (1) covered only one individual (or the individual and 

the individual’s spouse) and the individual (or the individual and the individual’s spouse) owned 

100 percent of the plan sponsor (whether or not incorporated), or (2) covered only one or more 

partners (or partners and their spouses) in the plan sponsor. Thus, under the provision, plans that 

are not subject to title I of ERISA are not subject to the blackout notice provisions.3

 3

 This provision is effective as if included in the Sarbanes-Oxley Act. 
11 

VI. AMENDMENTS RELATED TO TITLE VI OF THE ACT: 

INVESTMENT ADVICE, PROHIBITED TRANSACTIONS, 

AND FIDUCIARY RULES 

A. Prohibited Transaction Rules Relating to Financial Investments 

(Act sec. 611, ERISA sec. 408(b)(18)(C), and Code sec. 4975(d)(21)(C)) 

Under the Act, an exemption from the prohibited transaction rules of the Code and 

ERISA applies in the case of foreign exchange transactions between a plan and a bank or brokerdealer if certain requirements are met. Included in the Act is a requirement that the exchange 

rate used by the bank or broker-dealer for a particular transaction cannot deviate by more or less 

than three percent from the interbank bid and asked rates for transactions of comparable size and 

maturity. Under the provision, the exchange rate cannot deviate by more than three percent. 

B. Inapplicability of Relief from Fiduciary Liability During Suspension 

of Ability of Participant or Beneficiary to Direct Investments 

 (Act sec. 621 and ERISA sec. 404(c)) 

The Act provides that a person who is otherwise a fiduciary shall not be liable for any 

loss occurring during a blackout period if the person meets the requirements of ERISA with 

respect to authorizing and implementing the blackout period. A blackout period is generally 

defined under ERISA as a period in excess of three consecutive business days. Under the 

provision, the fiduciary relief is extended to periods of less than three consecutive business days 

provided that the fiduciary meets the requirements of ERISA in the same manner as if the shorter 

period constituted a blackout period. 
12 

VII. AMENDMENTS RELATING TO TITLE VII OF THE ACT: 

BENEFIT ACCRUAL STANDARDS 

A. Benefit Accrual Standards 

(Act sec. 701) 

Preservation of capital (ERISA sec. 204(b)(5)(B)(i)(II) and Code sec. 411(b)(5)(B)(i)(II))

The Act prohibits an applicable defined benefit plan account balance from being reduced 

below the aggregate amount of contributions. Under the provision, failure to comply with this 

rule is treated as a violation of the age discrimination rules under ERISA or the Code, as 

applicable. 

Application of present-value rules (ERISA sec. 203(f)(1)(B) and Code sec. 411(a)(13)(A)(ii))

 The Act permits an applicable defined benefit plan to distribute a participant’s accrued 

benefit under the plan in an amount equal to the participant’s hypothetical account balance under 

the plan without violating the present-value rules of ERISA section 205(g) and Code section 

417(e). ERISA section 203(e) and Code section 411(a)(11), which allow automatic cash-outs of 

amounts not exceeding $5,000, apply the section 205(g) and section 417(e) present-value rules 

by cross-reference. The provision adds cross-references to apply the new ERISA and Code 

provisions for purposes of ERISA section 203(e) and Code section 411(a)(11). 

Effective date (Act sec. 701(e))

The general effective date under Act section 701(e)(1) is periods beginning on or after 

June 29, 2005, and special effective dates are provided for certain provisions. The provision 

provides that the vesting provisions under Act section 701 are effective on the basis of plan years 

and that the vesting provisions apply with respect to participants with an hour of service after the 

applicable effective date for a plan. 

The Act established interest credit requirements for applicable defined benefit plans, 

which, under the general effective date, would apply to periods beginning on or after June 29, 

2005. Act section 701(e)(3) provides that, in the case of a plan in existence on June 29, 2005, 

the new interest credit rules apply to years beginning after December 31, 2007, unless the 

employer elects to apply them for any period beginning after June 29, 2005, and before the rules 

would otherwise apply. The provision changes this rule so that it refers to any period beginning 

“on or after” June 29, 2005. 

The Act established rules with respect to a conversion of a plan into an applicable defined 

benefit plan. Act section 701(e)(5) provides that these rules are applicable to plan amendments 

adopted after, and taking effect after, June 29, 2005. Similarly, ERISA section 204(b)(5)(B)(ii) 

and Code section 411(b)(5)(B)(ii) apply the conversion rules to conversion amendments adopted 

after June 29, 2005. The provision clarifies that the effective date for the conversion rules is on 

or after June 29, 2005. 

The Act establishes a special effective date for the vesting and interest crediting 

requirements for applicable defined benefit plans in the case of a collectively bargained plan. 
13 

The provision clarifies that these rules do not apply to plan years beginning before the earlier of: 

(1) the later of the termination of the collective bargaining agreement or January 1, 2008, or 

(2) January 1, 2010. 
14 

VIII. AMENDMENTS RELATED TO TITLE VIII OF THE ACT: 

PENSION RELATED REVENUE PROVISIONS 

A. Deduction Limitations 

(Act secs. 801 and 803) 

1. Increase in deduction limit for single-employer plans (Act sec. 801 and Code sec. 404) 

If an employer sponsors one or more defined benefit plans and one or more defined 

contribution plans that cover at least one of the same employees, an overall deduction limitation 

applies to the total contributions to all plans for a plan year. The overall deduction limit is 

generally the greater of (1) 25 percent of compensation or (2) the amount necessary to meet the 

minimum funding requirement of the defined benefit plan for the plan year. Under the Act, in 

the case of a single-employer plan not covered by the PBGC, the combined plan limit is not less 

than the plan's funding shortfall as determined under the funding rules. Under the provision, in 

the case of a single-employer plan not covered by the PBGC, the combined plan limit is not less 

than the excess (if any) of the plan’s funding target over the value of the plan’s assets. 

2. Updating deduction rules for combination of plans (Act sec. 803 and Code sec. 

404(a)(7)) 

If an employer sponsors one or more defined benefit plans and one or more defined 

contribution plans that cover at least one of the same employees, an overall deduction limitation 

applies to the total contributions to all plans for a plan year. The overall deduction limit is 

generally the greater of (1) 25 percent of compensation or (2) the amount necessary to meet the 

minimum funding requirement of the defined benefit plan for the plan year. The Act provides 

that the overall deduction limit applies to contributions to one or more defined contribution plans 

only to the extent that such contributions exceed six percent of compensation. IRS guidance 

(Notice 2007-28, 2007-14 I.R.B. 880) takes the position that if defined contribution plan 

contributions are less than six percent of compensation, contributions to the defined benefit plan 

are still subject to limitation of the greater of 25 percent of compensation or the minimum 

required contribution. The provision provides that if defined contributions are less than six 

percent of compensation, the defined benefit plan is not subject to the overall deduction limit. If 

defined contributions exceed six percent of compensation, only defined contributions in excess 

of six percent are counted toward the overall deduction limit. 

B. Improvements in Portability, Distributions, and Contribution Rules 

(Act sec. 829) 

1. Allow rollovers by nonspouse beneficiaries of certain retirement plan distributions (Act 

sec. 829 and Code secs. 402(c)(11) and 401(a)(31)(D)) 

The Act permits rollovers of benefits of nonspouse beneficiaries from qualified plans and 

similar arrangements. The provision adds inherited IRAs to the types of plans from which such a 

rollover may be made. As under the Act, making a rollover does not extend the otherwise 

permitted distribution period. 
15 

Under the provision, effective for plan years beginning after December 31, 2007, 

rollovers by nonspouse beneficiaries are generally subject to the same rules as other eligible 

rollovers. 

C. Health and Medical Benefits 

(Act secs. 841 and 845) 

1. Use of excess pension assets for future retiree health benefits and collectively bargained 

retiree health benefits (Act sec. 841 and Code sec. 420) 

In the case of a section 420 transfer, present law requires the funded status of the defined 

benefit plan to be maintained by employer contributions or asset transfers from the health 

accounts. Under the provision, asset transfers from the health accounts to maintain the plan’s 

funded status are not subject to the excise tax on reversions. 

The provision also allows assets transferred to a health benefits account in a qualified 

section 420 transfer to be used to pay health liabilities in excess of current-year retiree health 

liabilities. In the case of a qualified future transfer, assets may be used to pay qualified current 

retiree health liabilities which the plan reasonably estimates will be incurred. In the case of a 

collectively bargained transfer, assets may be used to pay collectively bargained retiree health 

liabilities. 

2. Distributions from governmental retirement plans for health and long-term care 

insurance for public safety officers (Act sec. 845 and Code sec. 402(l)) 

The Act provides an exclusion from gross income for up to $3,000 annually for certain 

pension distributions used to pay for qualified health insurance premiums. Under IRS Notice 

2007-7,4

 Q&A 23, the exclusion applies only to insurance issued by an insurance company 

regulated by a State (including a managed care organization that is treated as issuing insurance) 

and thus does not apply to self-insured plans. Under the provision, the exclusion applies to 

coverage under an accident or health plan (rather than accident or health insurance). That is, the 

exclusion applies to self-insured plans as well as to insurance issued by an insurance company. 

Under the provision, when determining the portion of a distribution that would otherwise 

be includible in income, the otherwise includible amount is determined as if all amounts to the 

credit of the eligible public safety officer in all eligible retirement plans were distributed during 

the taxable year. 

 4

 2007-5 I.R.B. 395. 
16 

D. United States Tax Court Modernization 

(Act secs. 854 and 856) 

1. Annuities to surviving spouses and dependent children of special trial judges 

(Act sec. 854, Code sec. 3121(b)(5)(E), and Social Security Act sec. 210(a)(5)(E)) 

Under the Act, participation in the survivor annuity program for survivors of judges of 

the United States Tax Court is extended to special trial judges of the United States Tax Court, 

and conforming changes are made to various provisions of the Code. One of the conforming 

changes is to specify that employment for purposes of the Federal Insurance Contributions Act 

(“FICA”) includes service performed as a special trial judge of the United States Tax Court. 

Under the provision, this conforming amendment is repealed. Thus, the provision provides that 

employment as a special trial judge of the United States Tax Court is covered employment for 

purposes of FICA under the rules that otherwise apply to Federal employees. 

2. Provisions for recall (Act sec. 856 and Code Sec. 7443B) 

The Act provides for rules regarding the temporary recall to judicial duties of retired 

special trial judges of the United States Tax Court and the compensation of such judges during 

the period of recall. The provision repeals these rules. 
17 

IX. AMENDMENTS RELATING TO TITLE IX OF THE ACT: 

INCREASE IN PENSION PLAN DIVERSIFICATION AND PARTICIPATION 

AND OTHER PENSION PROVISIONS 

A. Defined Contribution Plans Required to Provide Employees 

with Freedom to Invest Their Plan Assets 

(Act sec. 901 and Code sec. 401(a)(35)(E)) 

Under the Act, the diversification requirements do not apply with respect to a oneparticipant retirement plan. The provision conforms the Code’s definition of the term “oneparticipant retirement plan” to the definition of the term under ERISA. 

B. Increasing Participation through Automatic Contribution Arrangements 

(Act sec. 902 and Code sec. 414(w)) 

The Act provides rules permitting an employee to withdraw certain amounts (referred to 

as “permissible withdrawals”) in the case of an eligible automatic contribution arrangement 

under an applicable employer plan. The provision repeals the requirement that an eligible 

automatic contribution arrangement satisfy, in the absence of a participant investment election, 

the requirements of ERISA section 404(c)(5) (which generally authorizes the Secretary of Labor 

to issue regulations under which a participant is treated as exercising control over the assets in 

the participant’s account under a plan with respect to default investments). The provision also 

extends the permissible withdrawal rules to SIMPLE IRAs (Code sec. 408(p)) and SARSEPs 

(Code sec. 408(k)(6)). 

The Act also provides that, in the case of a distribution of an excess contribution and 

income allocable to such contribution in order to satisfy the rules relating to a qualified cash or 

deferral arrangement under Code section 401(k) (or the similar distribution rules under Code 

section 401(m) in the case of excess aggregate contributions relating to matching contributions 

or employee contributions), the income that must be distributed is the income allocable to the 

excess contribution (or excess aggregate contribution) through the end of the year for which the 

distribution is made. The provision applies this limit on the amount of income that must be 

distributed to the rules that apply to the distribution of excess deferrals and allocable income 

under Code section 402(g). 
18 

C. Treatment of Eligible Combined Defined Benefit Plans and 

Qualified Cash or Deferred Arrangements 

(Act sec. 903, Code sec. 414(x)(1), and ERISA sec. 210(e)) 

Under the Act, a qualified employer may establish a combined plan that consists of a 

defined benefit plan and a qualified cash or deferral arrangement described in Code section 

401(k), provided that certain requirements are satisfied. The Act also provides that the rules of 

ERISA are applied to the defined benefit component and the individual account component of a 

combined plan in the same manner as if each component were not part of the combined plan. 

Thus, for example, the defined benefit component of the combined plan may be subject to the 

insurance program in Title IV of ERISA, while the individual account component is not. The 

provision provides that in the case of a termination of a combined plan, the individual account 

and defined benefit components must be terminated separately. 
19 

X. AMENDMENTS RELATING TO TITLE X OF THE ACT: 

SPOUSAL PENSION PROTECTION PROVISIONS 

A. Extension of Tier II Railroad Retirement Benefits to Surviving Former Spouses 

(Act sec. 1003) 

The Act provides rules relating to the survivor benefits payable under the Railroad 

Retirement Act. The provision clarifies that a former spouse has an independent entitlement to 

immediate commencement of benefits if three conditions are satisfied. First, the employee must 

have completed 10 years of service in the railroad industry (or five years of service after 

December 31, 1995); second, the spouse or former spouse must have attained age 62; and third, 

the employee must have attained age 62. In addition, the provision provides that a former 

spouse’s Tier II benefits under the Railroad Retirement Act continue after the death of the 

employee. The provision is effective for payments due for months after August, 2007. 

 
20 

XI. AMENDMENTS RELATING TO TITLE XI OF THE ACT: 

ADMINISTRATIVE PROVISIONS 

A. No Reduction in Unemployment Compensation as a Result of Pension Rollovers 

(Act sec. 1105) 

Under present law, unemployment compensation payable by a State to an individual 

generally is reduced by the amount of retirement benefits received by the individual. Under the 

Act, rollover contributions are not included in retirement payments for which States are required 

to reduce unemployment compensation under Federal law, however, States are not prohibited 

from reducing unemployment compensation by such rollover contributions. Under the 

provision, unemployment compensation payable by a State to an individual may not be reduced 

by the amount of a rollover contribution. 
21 

XII. AMENDMENTS RELATING TO TITLE XII OF THE ACT: PROVISIONS 

RELATING TO EXEMPT ORGANIZATIONS 

A. Tax-Free Distributions from Individual Retirement 

Plans for Charitable Purposes 

(Act. Sec. 1201 and Code sec. 408(d)(8)(D)) 

The Act provides an exclusion from gross income for otherwise taxable IRA distributions 

from a traditional or a Roth IRA in the case of qualified charitable distributions. Under the 

provision, when determining the portion of a distribution that would otherwise be includible in 

income, the otherwise includible amount is determined as if all amounts in all individual 

retirement plans of the individual were distributed during such taxable year.