Pension Protection Act Blog

Section 508 of the Pension Protection Act requires that participants and beneficiaries - or at least SOME participants and beneficiaries - must be provided with a benefit statement containing some very specific information by some very certain deadlines. Determining what information must be provided, who the information must be provided to and when it must be provided is challenging. Section 508 requires the IRS to issue a model statement which can be used by plan administrators to comply with this requirement. Such a model statement will provide plan administrators a solution to WHAT information must be provided, and leaves them to answer the questions about WHO they are required to provide it to and WHEN it must be provided by.

WHO and WHEN are two questions which go hand-in-hand in Section 508, which separates participants and beneficiaries into two categories - those in defined benefit plans and those in individual account plans. When the statement must be provided is different depending upon which category the plan falls into.

Individual Account Plans

For individual account plans, Section 508 provides three different time frames for providing the statement. The first time frame is for participants and beneficiaries who have “the right to direct the investment of assets is his or her account under the plan”. These participants and beneficiaries must receive statements every calendar quarter. The Dept. of Labor, in FAB 2006-03, states that providing the statement within 45 days of the end of the quarter is good faith compliance with this requirement. As the first quarter ends on March 31st, good faith compliance means the statement will be provided by May 15th.

The second time frame is for participants and beneficiaries who do “not have the right to direct the investment of assets” in his or her own account under the plan. These participants and beneficiaries must receive a statement at least once each calendar year. Good faith compliance means this statement will be provided by February 14th, which is 45 days after the end of the calendar year.

The third time frame provides that a plan beneficiary not included in the two previous categories can make a written request for a statement. Even though is it not stated in FAB 2006-03, it is assumed that reasonable compliance means providing the statement to such a plan beneficiary within 45 days of the written request.

Defined Benefit Plans

For defined benefit plans, the time frame is not approaching as quickly. Section 508 contains two options for defined benefit plans. The first option is to provide a pension benefit statement once every 3 years to participants “with a nonforfeitable accrued benefit and who is employed by the employer maintaining the plan at the time the statement is to be furnished”. To other participants and beneficiaries, the pension benefit statement is to be furnished upon written request by the participant or beneficiary.

The second option is - instead of providing a pension benefit statement every 3 years - the plan administrator can provide participants with notice once a year that the pension benefit statement is available and how it can be obtained. This notice of availability can be provided to participants in “written, electronic or other appropriate form to the extent such form is reasonably accessible to the participant”.

For defined benefit plans, Section 508 provides for an extension of the 3-year time frame for years in which no benefits accrue. Section 508 specifically states that, when determining the 3-year period, the “Secretary may provide that years in which no employee or former employee benefits (within the meaning of section 410(b) of the Internal Revenue Code of 1986) under the plan need not be taken into account.” So the 3-year time frame for providing the pension benefit statement is potentially longer than 3 years.

Section 508 also provides an exclusion from providing the pension benefit statement - one-participant retirement plans as defined by ERISA section 101(i)(8)(B) are specifically excluded from this requirement. ERISA section 101(i)(8)(B) defined a one-participant defined benefit plan as:

(B) One-participant retirement plan. For purposes of subparagraph (A), the term “one-participant retirement plan” means a retirement plan that -

(i) on the first day of the plan year -
(I) covered only the employer (and the employer’s spouse) and the employer owned the entire business (whether or not incorporated), or
(II) covered only one or more partners (and their spouses) in a business partnership (including partners in an S or C corporation (as defined in section 1361(a) of the Internal Revenue Code of 1986)),

(ii) means the minimum coverage requirements of section 410(b) of the Internal Revenue Code of 1986 (as in effect on the date of the enactment of this paragraph) without being combined with any other plan of the business that covers the employees of the business,

(iii) does not provide benefits to anyone except the employer (and the employer’s spouse) or the partners (and their spouses),

(iv) does not cover a business that is a member of an affiliated service group, a controlled group of corporations, or a group of businesses under common control, and

(v) does not cover a business that leases employees.

Tomorrow - Part II - The Statement’s Content

Technorati Tags: Pension Protection Act, benefit statement, vesting, defined benefit, FAB 2006-03, ppa