Source: https://blog.myirstaxrelief.com/ppa-pension-protection-act-tax/
Timestamp: 2019-04-26 02:46:10+00:00

Document:
IRS has issued proposed guidance setting out when notice of a plan amendment that significantly reduces future benefit accruals must be sent to affected parties. The proposed regulations would amend previously issued Question and Answer-format regs on Code Sec. 4980F, and would largely provide guidance for changes made to Code Sec. 4980F by the Pension Protection Act of 2006 (“PPA,” P.L. 109-280). The proposed regs would also establish timing rules for providing a section 204(h) notice for retroactive plan amendments, and would attempt to harmonize various other Code and ERISA notice requirements with those of Code Sec. 4980F.
Typically, the anti-cutback rules of the Code (Code Sec. 411(d)(6)) and ERISA (ERISA § 204(g)) protect the accrued benefit of a participant in a defined benefit plan by providing that this benefit cannot be reduced by plan amendment, except under very limited circumstances. Further, before a plan amendment providing for a significant reduction in future benefit accruals can take effect, Code Sec. 4980F generally requires that notice of the amendment be sent to the affected parties at least 45 days before the amendment’s effective date.
Other Code and ERISA notice requirements. Code Sec. 436 provides rules for limiting benefits and benefit accruals for single-employer plans with certain funding shortfalls. ERISA § 101(j) generally requires the plan administrator to provide written notice to plan participants and beneficiaries within 30 days after the plan becomes subject to this benefit limit.
ERISA § 4244A provides that a multiemployer plan in reorganization may adopt an amendment reducing or eliminating certain accrued benefits attributable to employer contributions. However, an amendment reducing or eliminating benefits may not be made unless notice is provided to plan participants, beneficiaries, and other affected persons at least 6 months before the first day of the plan year in which the amendment reducing benefits is adopted.
Similarly, ERISA § 4245 requires the suspension of benefits under insolvent multiemployer plans if the benefit payments exceed the plan’s resource benefit level for the plan year. Again, plans subject to benefit suspensions must notify plan participants and beneficiaries that certain non-basic benefit payments will be suspended.
Pension Protection Act notice requirements. Section 502(c) of the PPA amended Code Sec. 4980F(e)(1) (and ERISA § 204(h)) to add as a recipient of a section 204(h) notice any employer that has an obligation to contribute to the plan. This new disclosure requirement is effective for plan years beginning after December 31, 2007.
Minimum present value rules. Code Sec. 417(e)(3) provides that, in determining the present value of a participant’s accrued benefit for distribution, the present value of the benefit cannot be less than the present value determined using the applicable mortality table and the applicable interest rate. Section 302(b) of the PPA provided new actuarial assumptions for calculating the minimum present value of a participant’s accrued benefit. Rev Rul 2007-67, 2007-48 IRB 1047, which included guidance on plan amendments adopting the new interest rate and mortality table, provided that amendments reflecting the new interest rate or mortality table for an annuity starting date in 2008 or later would not violate the anti-cutback rules.
Section 204(h) notice timing rules for retroactively effective amendments. Reg. § 1.411(d)-3(a)(1) generally provides that a plan is not qualified if a plan amendment decreases the accrued benefit of any plan participant. These rules are generally based on the “applicable amendment date,” which is defined as the later of (i) the amendment’s effective date, or (ii) the date the amendment is adopted.
While the general rule under Reg. § 1.411(d)-3(a)(1) prohibits plan amendments that reduce a plan participant’s accrued benefit, certain exceptions exist, such as those under Code Sec. 412(d)(2), providing special rules for retroactive plan amendments. Rev Proc 94-42, 1994-1 CB 717, sets forth the procedures that a plan sponsor must follow in filing notice with, and obtaining approval from, IRS for a retroactive amendment that reduces accrued benefits.
The same rules would apply to retroactive amendments made under the PPA’s remedial amendment period (Section 1107), Code Sec. 418D, Code Sec. 418E, and ERISA § 4281.
Cash balance plan conversions. The proposed regulations provide a special timing rule for section 204(h) amendments to an “applicable defined benefit plan,” as defined in Code Sec. 411(a)(13)(C)(i).
Observation: These plans are also called “statutory hybrid plans” in IRS guidance under Code Sec. 411 , and are more commonly known as cash balance plans.
Effective date. The regs are proposed to apply to 204(h) amendments effective after 2007. The 204(h) notice rules of Prop Reg § 54.4980F-1, Q&A 9(g)(2), regarding plan amendments with retroactive effective dates, apply to plan amendments that are effective after June 30, 2008. Finally, the 204(h) notice rules for cash balance (and other hybrid) plan conversions apply to amendments made effective after December 21, 2006, but not later than December 31, 2008.
A public hearing regarding the proposed regs will held July 10, 2008, at 10 a.m. in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue, N.W., Washington, DC. Written or electronic comments regarding the proposed regs must be received by June 19, 2008. Outlines of topics to be discussed at the public hearing must be received by June 20, 2008.

References: § 204
 § 101
 § 4244
 § 4245
 § 204
 § 1
 § 1
 § 4281
 § 54