Opinion ID: 2974994
Heading Depth: 3
Heading Rank: 3

Heading: Pension Protection Act of 2006

Text: Cash balance plans are typically designed to pay accrued benefits to participants upon the termination of their employment. Rachal, Hirschhorn & Eichberger, 22 Lab. Law. at 27. “ERISA, however, was not designed with cash balance plans in mind and, instead, is premised on the notion that in a defined benefit plan, the benefit due is an annuity beginning at the normal retirement age, typically age sixty-five.” Id. Until August of 2006, ERISA enforced this annuity obligation through several interrelated provisions. Id. at 20, 27. The net result of this enforcement scheme was that a No. 06-3442 West v. AK Steel Corporation et al. Page 5 cash balance plan such as the AK Steel Plan would be required to use the whipsaw calculation in order to comply with ERISA. See id. at 27. Partly to address the treatment of cash balance plans under the ERISA statutory scheme, Congress passed the Pension Protection Act (PPA) of 2006. Pub. L. No. 109-280, 120 Stat. 780 (2006). The PPA created special rules for cash balance plans, among them the provision that defined benefit plans shall not be treated as failing to meet the requirements of ERISA solely because the present value of an accrued benefit is deemed equal to the amount expressed as the balance in a participant’s hypothetical account. PPA § 701(a)(2). These rules apply to distributions made after August 17, 2006. PPA § 701(e)(2). In effect, the PPA establishes on a prospective basis that the whipsaw calculation is not required.