Sweeping Changes for Pension Plan Funding and Other Rules, Part 1 - Defined Benefit Plans

Abstract

The Pension Protection Act of 2006 (the "Act") makes sweeping and comprehensive changes to the rules under which defined benefit pension plans are funded. The new rules completely change the way in which the annual minimum required contributions are determined. The Act makes a number of other significant and related changes to the rules pertaining to defined benefit pension plans, such as (i) changing the way in which the annual maximum tax-deductible contributions are determined, (ii) applying new interest rate assumptions in calculating lump sums, (iii) imposing restrictions on benefit accruals under, certain benefits payable by and amendments to underfunded plans, (iv) prospective clarification of the rules for cash balance plans, and (v) requiring additional reporting and disclosure by employers. Included in the Act are many changes which apply to defined benefit multiemployer pension plans. The article provides an early look at the provisions of the Act which apply to defined benefit plans.