Pension Protection Act Blog

Spent some time today going through section 903 of the Pension Protection Act, which is the section on the combined defined benefit/401(k) plans permitted for plan years after December 31, 2009. The question, which I’ve heard several times over the last couple of months, is how to make the most appropriate choices now in designing a 401k plan and a defined benefit plan so that they can be easily combined after December 31, 2009. The choices to be made in the 401k plan are fairly easy concerning vesting, matching and automatic enrollment. It is maximizing the contribution and deduction limits which makes DBK plans complex.

The Workplace Prof Blog, by Richard Bales, recently published a link to The Shift from Defined Benefit Plans to Defined Contribution Plans, a fairly short paper by Sam Estreicher and Laurence Gold. Even though the paper fails to really discuss the recent guidance issued by the IRS about the 404 deduction limit, and the expected impact of the shift in mortality tables to RP-2000, it is worth thinking about. The contribution limits on defined contribution plans make them insufficient retirement vehicles unless they are combined with another plan which has a higher contribution limit.

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