The Pension Protection Act of 2006 contains a significant number of beneficial changes in regards to pensions and other qualified retirement plans, extending and makes permanent a number of provisions from the Economic Growth and Tax Reconciliation Act of 2001, and including many other significant changes, especially with regard to charitable giving and tax-exempt organizations.

Title I reforms the funding rules for single-employer defined benefit pension plans. Similarly, Title II provides for reform of the funding rules for multiemployer plans. Title III deals with changes to interest rate assumptions, and Title IV relates to PBGC guarantees and premiums. Title V contains required disclosures, including a defined planning funding notice, and termination information to plan participants.

ERISA is amended in Title VI to allow fiduciary advisors to give investment advice to plan participants or beneficiaries if certain requirements are met. Title VII contains provisions affecting benefit accrual standards including delineation when conversion to a hybrid cash-balance plan won't result in age discrimination.

Here are some of the other changes:

  • Direct rollovers from retirement plans to Roth IRAs are permitted;
  • Liberalization of plan rules governing hardships and unforeseen financial emergencies;
  • Waiver of 10-percent early withdrawal penalty for certain retirement plan distributions for public safety employees;
  • Permitting rollovers by non-spousal beneficiaries of certain retirement plan distributions;
  • Direct payment of tax refunds to individual retirement plans;
  • Use of excess pension benefits for future retiree health benefits and collectively bargained retiree health benefits;
  • For a specified time, limited tax-free distributions from individual retirement plans for charitable purposes are possible;
  • Permits annuity and life insurance contracts with a long-term care insurance feature;
  • Restricts the income exclusion for benefits from corporate-owned life insurance;
  • Requires participant to have the ability to diversify when plan assets are invested in employer securities;
  • Allows employers to automatically enroll employees in defined benefit plans;
  • Permanently extends Section 529 qualified tuition program provisions;
  • Permits recapture of tax benefits for charitable contributions of exempt property not used for an exempt purpose;
  • Imposes restrictions on the deduction for charitable contributions of clothing and household items;
  • Requires strict recordkeeping to substantiate cash charitable contributions; and
  • Adds excise taxes on taxable distributions from, and prohibited benefits with regard to donor advised funds.

Previously on WebCPA:Senate Passes Pension Reform, Passes on Estate Tax (Aug. 7, 2006)

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