WPC  R:`I쒌NwSw7Bwu)>,NQWn9jjԴP*b ש@<8^iB ⬞bZ/%!t˜#"15H|j28x9jh2"t(!_h0>TN dd0G"c,W}y*k2:N"50RF.G>QJl drWO^ɐLSO-E FHwI}uyb-G`WLCW_E(9M-W*S# 4UN? % 0( 1m 0"c( 1kw@46J 0lwY 0 0cZ 0 0g 0u P U<X U B U: HP LaserJet 4050 Series PCL6WINSPOOL,,,,0 (9 Z 6Times New Roman RegularX($ #:A37=CIQYag1.a.i.(1)(a)(i)1)a)(;$2:A  0  .3  0   #37=CIOW_eI.A.1.a.(1)(a)i)a) , E- . E/ 0 1 E2 3 D4 5 D݋a33|x5 (O$0  2:A  a  .3  0` (#(#(bd$0  0` (#(#2:A   .3  0 ` (#` (#(xr$0  0` (#(#0 ` (#` (#2:A(  0  )3  0 (# (#($0  0` (#(#0 ` (#` (#0 (# (#2:A(  a  )3  0h(#(#($0  0` (#(#0 ` (#` (#0 (# (#0h(#(#2:A(   )3  0h(#h(#(t$0  0` (#(#0 ` (#` (#0 (# (#0h(#(#0h(#h(#2:A  0  )3  0(#(#\ `$Times NewRoman.\  `*TimesNewRomanPSMT.\  `"TimesNewRoman !  C   # C(8887XXdXXd7 3 XX@dUPDATEONBENEFITSANDRETIREMENTPENSIONS:THEBASICS 8  @*dby  CurtisL.HarringtonHarrington&Harrington6300StateUniversityDrive,Suite250LongBeach,CA90815Tel:(562)5949784;Fax:(562)5944414www.patentax.com @  @  @  @ curt@patentax.comPATENTAX      2  I  .3  0    HISTORY ݌ N ## Ќ        ^0  2  A  .3  0 ##  Historically,pensionsweretreatedasagratuity:employeeshadnorightin d,  thepension.Employerscouldrevokethepromiseatanytime. ^݌  # # Ќ        0  2  B  .3  0 ##  Thegratuitytheorywasovercomebythehumandepreciationtheory,which @  includedsomenotionofcontractualconsiderationtosupportandmakethegratuitypensionbinding. ݌  # # Ќ        b0  2  C  .3  0 ##  Thehumandepreciationtheorywasovertakenbydeferredwagetheory,   whereinpensionsweretreatedasearnedduringemploymentbutwerepaidduringretirement b݌  # # Ќ        0  2  D  .3  0 ##  Seminalevent:Studebakerincident,1963.TheStudebakercarcompany  wentbankrupt,putting11,000peopleoutofwork.Ofthemoneysetasideforpensions,theadjudicatedsplitwasasfollows:only3,600oftheworkers,thoseoverage60,weregivenafullretirement.Thenext4,000workers,thosebetweenages40and59withmorethan10yearsofservice,weregivenascant15%offullpensionrights.Theremaining3,400employees,thoseeitherunderage40orbetweentheagesof40and70withlessthan10yearsofservice,receivednothing. ݌  # # Ќ         0  2  E  .3  0 ##  Aftermuchdebateandnegotiation,ERISAwaspassedin1974andwent D  intoeffectin1976.  " ݌  # # Ќ        7 0  2  F  .3  0 ##  ERISAhaschangedlinearlywithchangestothetaxlaw:   ERISA(1974)/TEFRA(1982)/DEFRA(1982)/REA(1984)/TRA(1986)/OBRA(1987)/RPA(1994)/SBJPA(1996)/EGTRAA(2001)/&PFEA(2004);PensionProtectionAct,orPPA(2006) 7 b ݌  # # Ќ       2  II  .3  0    OVERVIEWOFERISA:EMPLOYMENTRETIREMENTINCOME $ # SECURITYACTOF1974 "݌ ## Ќ  ݀  &n"%       (0  2  A  .3  0 ##  TheERISAStatuteislocatedin29USC1001,et.seq.However,when '^#& theEmployeeRetirementIncomeSecurityAct("ERISA"or"theAct")becamelawin1974,itwasshovedintoTitle29haphazardly,suchthatTitle29sectionnumbersassignedtotheprovisionsofERISAdonotcorrespondexactlywiththesectionnumberingintheoriginalAct.Manyprovisionsof29USCareduplicatedin26USC,theInternalRevenueCode. (S݌<,(+ # # Ќ        0  2  B  .3  0 ##  QualifiedPlan ݌8 # # Ќ    d    d0  0 ##2  1  .3  00 # #  Definition:apermanent,definite,writtenprogramsettingforthall & essentialprovisions d݌ 0 #0 # Ќ    d    d0  0 ##2  2  .3  00 # #  Requiredcomponents:aqualifiedplanmust: d*݌0 #0 # Ќ   r   r0  0 ##00 # #2  a  .3  00 #0 #  beestablishedbytheemployerrD݌## Ќ   r   r:0  0 ##00 # #2  b  .3  00 #0 #  becommunicatedtotheemployeesr:e݌## Ќ   r   r]0  0 ##00 # #2  c  .3  00 #0 #  befortheexclusivebenefitofemployeesand/ortheir   beneficiariesr]݌ ## Ќ   r   r0  0 ##00 # #2  d  .3  00 #0 #  accountforcontributionstotheplanr݌ p## Ќ   r   r0  0 ##00 # #2  e  .3  00 #0 #  havestatutoryvestingstandardsr݌ ^ ## Ќ   r   r0  0 ##00 # #2  f  .3  00 #0 #  prohibitanyforfeitureofaccruedbenefitsr&݌ L ## Ќ   r   r)0  0 ##00 # #2  g  .3  00 #0 #  notdiscriminateinfavorofhighlycompensatedemployeesr)T݌r: ## Ќ    d    de0  0 ##2  3  .3  00 # #  WhatisNOTaqualifiedplan: de݌`( 0 #0 # Ќ   r   rq0  0 ##00 # #2  a  .3  00 #0 #  Anemployeewelfarebenefitplan(health,vacation)rq݌N ## Ќ   r   r0  0 ##00 # #2  b  .3  00 #0 #  Aplanwhichisunfundedandismaintainedbyanemployer <  primarilyforthepurposeofprovidingdeferredcompensationforaselectgroupofmanagementorhighlycompensatedemployees(tophatandnonqualifiedplans)r݌ ## Ќ   r   r!0  0 ##00 # #2  c  .3  00 #0 #  Aplanestablishedandmaintainedbyasociety,order,or  associationdescribedinIRC501(c)(8)or(c)(9)r!!݌ ## Ќ   r   r #0  0 ##00 # #2  d  .3  00 #0 #  Aunionplanwhichdoesnothaveemployercontributionsr #8#݌## Ќ   r   rG$0  0 ##00 # #2  e  .3  00 #0 #  AnindividualretirementaccountorannuityrG$r$݌## Ќ   r   ru%0  0 ##00 # #2  f  .3  00 #0 #  Anexcessbenefitplanru%%݌t## Ќ   r   r&0  0 ##00 # #2  g  .3  00 #0 #  Anyplanforanunfundedarrangementtocompensateretired b employeesforforfeitedbenefitsbyaformeremployerr&&݌ ## Ќ    d    d (0  0 ##2  4  .3  00 # #  Qualifiedplandocumentrequirements: d (8(݌v>0 #0 # Ќ   r   r!)0  0 ##00 # #2  a  .3  00 #0 #  Nameandtypeofadministrationr!)L)݌d,## Ќ   r   rC*0  0 ##00 # #2  b  .3  00 #0 #  NameandaddressofapersonforserviceofprocessrC*n*݌R## Ќ   r   ry+0  0 ##00 # #2  c  .3  00 #0 #  Nameandaddressoftheplanadministratorry++݌@## Ќ   r   r,0  0 ##00 # #2  d  .3  00 #0 #  Names,titlesandaddressesoftrusteesr,,݌.## Ќ   r   r-0  0 ##00 # #2  e  .3  00 #0 #  Descriptionofcollectivebargainingagreementprovisionsr--݌ ## Ќ   r   r /0  0 ##00 # #2  f  .3  00 #0 #  Astatementofeligibilityandbenefits[r /7/݌ !## Ќ   r   r800  0 ##00 # #2  g  .3  00 #0 #  Circumstancesfordisqualificationorineligibilityr80c0݌! ## Ќ   r   rn10  0 ##00 # #2  h  .3  00 #0 #  Identityofthesourceoffinancingandsourceofbenefitsrn11݌"!## Ќ   r   r20  0 ##00 # #2  i  .3  00 #0 #  Dateoftheendoftheplanyearandtimingofrecordsr22݌#"## Ќ   r   r30  0 ##00 # #2  j  .3  00 #0 #  Proceduresforpresentingclaimsr34݌$ ### Ќ   r   r50  0 ##00 # #2  k  .3  00 #0 #  Proceduresforredressofclaimsr525݌%x!$## Ќ    d    d*60  0 ##2  5  .3  00 # #  Newplans:whereanewplanisuntested,itcanbesubmittedtothe &f"% IRSforanopinionthatitisacceptableasaqualifiedplan.RecentincreasesinIRSopinionfeesnowrangefrom$200to$4500(IR-2005-144,Dec.19,2005) d*6U6݌ 0 #0 # Ќ    d    d80  0 ##2  6  .3  00 # #  Twotypesofplans: d818݌V*&)0 #0 # Ќ   r   r90  0 ##00 # #2  a  .3  00 #0 #  DEFINEDCONTRIBUTIONPLAN:apensionplanwhich D+ '* providesforanindividualaccountforeachparticipantandfor 2,'+ benefitsbasedsolelyupontheamountcontributedtotheparticipantsaccount.Anyincome,expenses,gainsandlossesareallocatedtosuchparticipantsaccount.r939݌ ## Ќ   r   rE;0  0 ##00 # #2  b  .3  00 #0 #  DEFINEDBENEFITPLAN:apensionplanotherthanan  individualaccountplanrE;p;݌ ## Ќ   r   r<0  0 ##00 # #2  c  .3  00 #0 #  HYBRIDPLAN.Notethatanemployeemayhaveahybrid  plan,whichisacombinationof(a)and(b),butthecombinationwillbetreatedasthoughseparate.Aswillbeseen,oneoftheprohibitionsinthecaseagainstmorphedconversionofadefinedbenefitplantoadefinedcontributionplanisthatthetypeshavecompletelydifferentoperatingaspects.r<<݌ ## Ќ      ?2  III  .3  0    RESTRICTIONSONPLANS ???݌N ## Ќ        ?0  2  A  .3  0 ##  QualifiedStatusrequirements: ?!@݌,  # # Ќ    d    d@0  0 ##2  1  .3  00 # #  Exclusivebenefitsofbeneficiaries d@A݌0 #0 # Ќ    d    dB0  0 ##2  2  .3  00 # #  Assetscannotbediverted dB,B݌0 #0 # Ќ    d    d C0  0 ##2  3  .3  00 # #  Minimumparticipationstandardsmusteither: d C4C݌0 #0 # Ќ   r   r&D0  0 ##00 # #2  a  .3  00 #0 #  Passratiopercentagetestorr&DQD݌## Ќ   r   rFE0  0 ##00 # #2  b  .3  00 #0 #  Passaveragebenefitpercentagetestwithemployeesproperly  classifiedrFEqE݌ ## Ќ    d    dF0  0 ##2  4  .3  00 # #  Maximumservicebeforevesting(gradedandcliffvesting) dFF݌v0 #0 # Ќ    d    dG0  0 ##2  5  .3  00 # #  Rulesforcountingservice(1000hours=1year) dGG݌d0 #0 # Ќ    d    dH0  0 ##2  6  .3  00 # #  Cannotexcludesomeoneoverage21 dHI݌R0 #0 # Ќ    d    dI0  0 ##2  7  .3  00 # #  Cannotexcludemorethan6monthsafterotherrequirements x@ satisfied dIJ݌ 0 #0 # Ќ    d    d3K0  0 ##2  8  .3  00 # #  Breaksinservice: d3K^K݌T0 #0 # Ќ   r   r4L0  0 ##00 # #2  a  .3  00 #0 #  1yearbreak:periodbeforebreakisnotaddedtolaterservicer4L_L݌B ## Ќ   r   rvM0  0 ##00 # #2  b  .3  00 #0 #  Extendedbreakwithseriesofconsecutiveoneyearbreaks 0 priortovestingwillnotbetakentoaccounttotheextentofthegreaterof5yearsorthenumberofyearsofservicebeforetheextendedbreak.rvMM݌ ## Ќ    d    dQO0  0 ##2  9  .3  00 # #  Maternity/paternityworkabsence(maximum501hours) dQO|O݌"!0 #0 # Ќ    d    dtP0  0 ##2  10  .3  00 # #  Specialexclusionrulesforcollectivelybargainedagreements& #" aliens dtPP݌ 0 #0 # Ќ    d    dQ0  0 ##2  11  .3  00 # #  ERISArulesdonotapplytothefollowing: dQQ݌%z!$0 #0 # Ќ   r   rR0  0 ##00 # #2  a  .3  00 #0 #  AncillarylifeinsurancerRR݌&h"%## Ќ   r    rS0  0 ##00 # #2  b  .3  00 #0 #  AccidentorhealthbenefitsrST݌'V#&## Ќ   r    r U0  0 ##00 # #2  c  .3  00 #0 #  Socialsecuritysupplements(IRC411(a)9,butnotincluding |(D$' qualifiedsocialsecuritysupplementsof1.401(a)(4)12)r U4U݌ ## Ќ   r    rV0  0 ##00 # #2  d  .3  00 #0 #  LoansrVV݌X* &)## Ќ   r    rW0  0 ##00 # #2  e  .3  00 #0 #  Righttomakeaftertaxemployeecontributionsorelective F+'* deferralsrWW݌4,'+## Ќ   r    rX0  0 ##00 # #2  f  .3  00 #0 #  RighttodirectinvestmentsrXY݌8## Ќ   r    rZ0  0 ##00 # #2  g  .3  00 #0 #  RighttoparticularformofinvestmentrZ=Z݌&## Ќ   r    r;[0  0 ##00 # #2  h  .3  00 #0 #  Allocationdatesforcontributions,forfeitures,andearningsr;[f[݌## Ќ   r    r{\0  0 ##00 # #2  i  .3  00 #0 #  Administrativeproceduresfordistributingbenefitsr{\\݌## Ќ   r   r]0  0 ##00 # #2  j  .3  00 #0 #  Administrativediscretionwithintheplanrulesandstatutesr]]݌## Ќ    d    d^0  0 ##2  12  .3  00 # #  Plansnotcircumventedbyemployeeleasing.Itispermissiblefora  leasingorganizationplantocoveranemployeeifsuchanarrangementcoversnotmorethan20%oftheemployer'snonhighlycompensatedworkforce. d^_݌ 0 #0 # Ќ      `2  IV  .3  0    OPERATIONOFTHEPLAN ``݌ L ## Ќ        a0  2  A  .3  0 ##  PlanAdministratorsAnnualReport aa݌b*  # # Ќ    d    db0  0 ##2  1  .3  00 # #  Whendue:within120daysaftertheendofplanyear,including P  both: dbb݌ 0 #0 # Ќ   r   rc0  0 ##00 # #2  a  .3  00 #0 #  financialstatementandopinionrcd݌, ## Ќ   r   r e0  0 ##00 # #2  b  .3  00 #0 #  actuarialstatement&opinion. @ r e5e݌## Ќ    d    d9f0  0 ##2  2  .3  00 # #  Requiredelements: d9fdf݌0 #0 # Ќ   r   r:g0  0 ##00 # #2  a  .3  00 #0 #  Statementofassetsandliabilitiesr:geg݌## Ќ   r   r`h0  0 ##00 # #2  b  .3  00 #0 #  Statementofchangesinfundbalanceornetassetsr`hh݌## Ќ   r   ri0  0 ##00 # #2  c  .3  00 #0 #  Statementofreceiptsanddisbursementsfor12monthsrii݌## Ќ   r   rj0  0 ##00 # #2  d  .3  00 #0 #  Scheduleofassetsforinvestmentpurposesrjj݌## Ќ   r   rk0  0 ##00 # #2  e  .3  00 #0 #  Statementidentifyingtransactionsofpartiesininterestrk%l݌v## Ќ   r   r6m0  0 ##00 # #2  f  .3  00 #0 #  Scheduleofloansandleasesindefaultr6mam݌d## Ќ   r   r`n0  0 ##00 # #2  g  .3  00 #0 #  Listofassetsheldbyothersandtheirannualreportr`nn݌R## Ќ   r   ro0  0 ##00 # #2  h  .3  00 #0 #  Listingofeachtransactionintheplanforthepreviousyearroo݌x@## Ќ    d    dp0  0 ##2  3  .3  00 # #  Administratornowresponsibleforprovidingplanparticipantwith: dpq݌f.0 #0 # Ќ   r   r r0  0 ##00 # #2  a  .3  00 #0 #  Quarterlyvaluestatementsforselfdirectedinvestmentsr r4r݌T## Ќ   r   rDs0  0 ##00 # #2  b  .3  00 #0 #  AnnualvaluestatementsuponwrittenrequestforothersrDsos݌B ## Ќ   r   r~t0  0 ##00 # #2  c  .3  00 #0 #  Penaltyforfailuretoprovideisupto$100perdayper 0 participantr~tt݌ ## Ќ    d    du0  0 ##2  4  .3  00 # #  DiversificationRequirement duu݌ !0 #0 # Ќ   r   rv0  0 ##00 # #2  a  .3  00 #0 #  Employeecontributionsinvestedinpublicsecuritiesare !  allowedtodiversifyanytimervw݌ ## Ќ   r   r@x0  0 ##00 # #2  b  .3  00 #0 #  InvestmentinEmployerSecuritiescanbediversifiedafter3 #" yearsparticipation(basedon3yearphaseinforparticipantslessthan55yearsold)Ln LnLnr@xkx݌%z!$## Ќ  # Lny##  y#  d    dnz0  0 ##2  5  .3  00 # #  RequiredNoticeoffreedomtodivestemployersecurities.(ERISA &h"% 101(l) dnzz݌ 0 #0 # Ќ    d    d{0  0 ##2  6  .3  00 # #  Administratorresponsibleforprovidingactuarywith: d{{݌|(D$'0 #0 # Ќ   r   r|0  0 ##00 # #2  a  .3  00 #0 #  Numberofemployeescoveredbytheplanr|}݌j)2%(## Ќ   r   r~0  0 ##00 # #2  b  .3  00 #0 #  Nameandcurrentaddressofthefiduciaryr~-~݌X* &)## Ќ   r   r.0  0 ##00 # #2  c  .3  00 #0 #  Eachpersonrenderingservicestotheplanr.Y݌F+'*## Ќ   r   r[0  0 ##00 # #2  d  .3  00 #0 #  Explanationofeachchangeoftrustee,accountant,insurance 4,'+ carrier,andenrolledactuary(notethatactuarialethicscancausethechangingofactuariestobeaneventrequiringaccesstothepreviousactuaryanddisclosureofthereasonforthechange)r[݌ ## Ќ   r   ri0  0 ##00 # #2  e  .3  00 #0 #  Dateandyearofactuarialvaluationri݌## Ќ   r   r0  0 ##00 # #2  f  .3  00 #0 #  Dateandamountsofcontributionreceivedbytheplanr݌## Ќ   r   rȄ0  0 ##00 # #2  g  .3  00 #0 #  Anynormalcosts,accruedliabilities,andbenefitsnot   includedinthecalculationsrȄ݌ ## Ќ   r   r+0  0 ##00 # #2  h  .3  00 #0 #  Justificationforanychangeanactuarialassumptionsorcost  p methodsr+V݌ ## Ќ   r   r0  0 ##00 # #2  i  .3  00 #0 #  Numberofparticipants,retiredandnonretiredr݌ L ## Ќ   r   r0  0 ##00 # #2  j  .3  00 #0 #  Currentandpresentvalueofassetsr܈݌r: ## Ќ   r   r׉0  0 ##00 # #2  k  .3  00 #0 #  Certificationofthecontributionneededtoreducethe `(  accumulatedfundingdeficittozeror׉݌ ## Ќ   r   r@0  0 ##00 # #2  l  .3  00 #0 #  Actuarialstatementandacopyoftheactuarysopinionr@k݌< ## Ќ   r   r}0  0 ##00 # #2  m  .3  00 #0 #  Aspecialexplanationifassetsarelessthan70%ofliabilities.r}݌* ## Ќ        0  2  B  .3  0 ##  NewDefinedBenefitPlanFundingNotice(ERISA101(f)) ݌ # # Ќ    d    d֎0  0 ##2  1  .3  00 # #  Reportnotlessthanannually d֎݌0 #0 # Ќ   r   r0  0 ##00 # #2  a  .3  00 #0 #  Providedto:r ݌## Ќ      0  0 ##00 # #00 #0 #2(  1  )3  0##  ThePensionBenefitGuarantyCorporation݌## Ќ      10  0 ##00 # #00 #0 #2(  2  )3  0##  eachplanparticipantandbeneficiary1\݌## Ќ      n0  0 ##00 # #00 #0 #2(  3  )3  0##  eachrepresentativelabororganizationn݌## Ќ      0  0 ##00 # #00 #0 #2(  4  )3  0##  eachmultiemployerplanemployerה݌t## Ќ   r   r0  0 ##00 # #2  b  .3  00 #0 #  SpecificInformationIncludes:r݌b## Ќ      0  0 ##00 # #00 #0 #2(  1  )3  0##    theplansfundingtargetattainment%0݌P## Ќ      e0  0 ##00 # #00 #0 #2(  2  )3  0##  ݀multiemployerplanstatementofwhetherfunded v> percentageislessthan100%e݌ ## Ќ      ՙ0  0 ##00 # #00 #0 #2(  3  )3  0##  thevalueoftheplansassetsandliabilitiesՙ݌R## Ќ      0  0 ##00 # #00 #0 #2(  4  )3  0##  multiemployerplanstatementofthevalueI݌@## Ќ      _0  0 ##00 # #00 #0 #2(  5  )3  0##  whethermultiemployerplanwasincriticalor . endangeredstatus_݌ ## Ќ      0  0 ##00 # #00 #0 #2(  6  )3  0##  statementonhowtoobtainacopyoftheplans  ! fundingimprovement/rehabilitationplan݌ ## Ќ      @0  0 ##00 # #00 #0 #2(  7  )3  0##  asummaryofanyfundingimprovementplan@k݌"!## Ќ      0  0 ##00 # #00 #0 #2(  8  )3  0##  planamendmentofbenefitincreaseorreduction݌#"## Ќ      ȡ0  0 ##00 # #00 #0 #2(  9  )3  0##  multiemployerplansummaryoftherulesgoverning $ # reorganizationorinsolvency#  ڗ#ȡ݌%x!$## Ќ    d    de0  0 ##2  2  .3  00 # #  After12/2007BasicPlanInformationmustbeprovided &f"% electronicallyforpostingontheInternet de݌ 0 #0 # Ќ        0  2  C  .3  0 ##  ActuaryDuties ݌z(B$' # # Ќ   r   r0  0 ##00 # #2  a  .3  00 #0 #  AnnualReports:rԥ݌h)0%(## Ќ      0  0 ##00 # #00 #0 #2(  1  )3  0##  PBGCForm1ScheduleA,itemscertifiedinclude:݌V*&)## Ќ      0  0 ##00 # #00 #0 #0##2(  a  )3  08##  Presentvalueofvestedbenefits0݌D+ '*8#8# Ќ      Q0  0 ##00 # #00 #0 #0##2(  b  )3  08##  ValueofplanassetsQ|݌2,'+8#8# Ќ      Ƒ0  0 ##00 # #00 #0 #0##2(  c  )3  08##  IdentityandexplanationofsignificanteventsƑ݌88#8# Ќ      0  0 ##00 # #00 #0 #0##2(  d  )3  08##  Valueofadjustedunfundedvestedbenefits݌&8#8# Ќ      A0  0 ##00 # #00 #0 #0##2(  e  )3  08##  AmountofthePBGCvariableratepremiumAl݌8#8# Ќ      0  0 ##00 # #00 #0 #2(  2  )3  0##  IRSform5500ScheduleB,itemscertifiedinclude:݌## Ќ      0  0 ##00 # #00 #0 #0##2(  a  )3  08##  Actuarialvariationdate ݌8#8# Ќ      %0  0 ##00 # #00 #0 #0##2(  b  )3  08##  Currentvalueofassets%P݌8#8# Ќ      h0  0 ##00 # #00 #0 #0##2(  c  )3  08##  Actuarialvalueofassetsh݌ 8#8# Ќ      ƭ0  0 ##00 # #00 #0 #0##2(  d  )3  08##  Accruedliabilityforimmediategainmethodsƭس݌ 8#8# Ќ      0  0 ##00 # #00 #0 #0##2(  e  )3  08##  Spreadgainmethods(ifapplicable)0݌ p8#8# Ќ      T0  0 ##00 # #00 #0 #0##2(  f  )3  08##  Unfundedliabilitymethods&basesT݌ ^ 8#8# Ќ      Ƣ0  0 ##00 # #00 #0 #0##2(  g  )3  08##  Entryagenormalaccruedliability&normal  L  costƢͷ݌ 8#8# Ќ       0  0 ##00 # #00 #0 #0##2(  h  )3  08##  Amountsexcludedfromcurrentliability 5݌`( 8#8# Ќ      ]0  0 ##00 # #00 #0 #0##2(  i  )3  08##  Currentliabilitycomputedatthehighest N  allowableinterestrate]݌ 8#8# Ќ      ֻ0  0 ##00 # #00 #0 #0##2(  j  )3  08##  RPA94currentliabilitywithina90%105% *  corridorֻ݌ 8#8# Ќ      C0  0 ##00 # #00 #0 #0##2(  k  )3  08##  CurrentvalueofassetsCn݌8#8# Ќ      Ɔ0  0 ##00 # #00 #0 #0##2(  l  )3  08##  ExpectedplandisbursementsƆ݌8#8# Ќ      Ϳ0  0 ##00 # #00 #0 #0##2(  m  )3  08##  ContributionsmadetoplanͿ݌8#8# Ќ      0  0 ##00 # #00 #0 #0##2(  n  )3  08##  Quarterlyplancontributions>݌8#8# Ќ      [0  0 ##00 # #00 #0 #0##2(  o  )3  08##  Actuarialcostmethods[݌8#8# Ќ      Ɲ0  0 ##00 # #00 #0 #0##2(  p  )3  08##  ActuarialassumptionsƝ݌t8#8# Ќ      0  0 ##00 # #00 #0 #0##2(  q  )3  08##  Weightedaverageretirementage ݌b8#8# Ќ      )0  0 ##00 # #00 #0 #0##2(  r  )3  08##  Valuationliabilityinterestrate)T݌P8#8# Ќ      v0  0 ##00 # #00 #0 #0##2(  s  )3  08##  Expenseloadingv݌v>8#8# Ќ      Ʊ0  0 ##00 # #00 #0 #0##2(  t  )3  08##  AnnualwithdrawalratesƱ݌d,8#8# Ќ      0  0 ##00 # #00 #0 #0##2(  u  )3  08##  Salaryscaleforannualsalaryincreases݌R8#8# Ќ      H0  0 ##00 # #00 #0 #0##2(  v  )3  08##  EstimatedinvestmentreturnHs݌@8#8# Ќ      Ə0  0 ##00 # #00 #0 #0##2(  w  )3  08##  Estimatedrateofreturnbaseduponmarket . valuesƏ݌ 8#8# Ќ      0  0 ##00 # #00 #0 #0##2(  x  )3  08##  Contributionsnecessarytoavoiddeficiency#݌ !8#8# Ќ      O0  0 ##00 # #00 #0 #0##2(  y  )3  08##  Reconciliationaccountforcomponentsoutside !  normalbalanceOz݌ 8#8# Ќ      0  0 ##00 # #00 #0 #0##2(  z  )3  08##  Aggregateunfundedvestedbenefits݌#"8#8# Ќ   r   r0  0 ##00 # #2  b  .3  00 #0 #  AdditionalPreparationofTargetFundingDataforTarget $ # FundingReportsr<݌ ## Ќ    d    dh0  0 ##2  1  .3  00 # #  AccountingforEachPlanParticipant dh݌&f"%0 #0 # Ќ   r   r{0  0 ##00 # #2  a  .3  00 #0 #  Vesting(IRC411):r{݌'T#&## Ќ      0  0 ##00 # #00 #0 #2(  1  )3  0##  DefinedBenefitPlansandDefinedContributionplans z(B$' priortoPensionProtectionActof2006:Graded:3to7years:3(20%),4(40%),5(60%),6(80%)&7(100%)݌ ## Ќ      T0  0 ##00 # #00 #0 #2(  2  )3  0##  DefinedContributionPlansGraded:2to6years: D+ '* 2(20%),3(40%),4(60%),5(80%)&6(100%)[Pension 2,'+ ProtectionActof2006,effectivefor2007]T݌ ## Ќ      0  0 ##00 # #00 #0 #2(  3  )3  0##  DefinedBenefitPlans:Cliff:(100%vestedafter5 & years)[priortoPensionProtectionActof2006butremainseffectivefor2006]100%vestedafter4 54 5 35 yearsD݌ ## Ќ      0  0 ##00 # #00 #0 #2(  4  )3  0##  DefinedContributionPlans:Cliff:(100%vestedafter  3years)[PensionProtectionActof2006,effectivefor2007]݌ ## Ќ   r   r0  0 ##00 # #2  b  .3  00 #0 #  Countingyearsofservice(forbothvestingandpension   amount):r݌ ## Ќ      0  0 ##00 # #00 #0 #2(  1  )3  0##  1000hoursormorecountsasoneyearofservice݌ ^ ## Ќ      0  0 ##00 # #00 #0 #2(  2  )3  0##  Neednotcountserviceifemployeeisunderage18J݌ L ## Ќ      i0  0 ##00 # #00 #0 #2(  3  )3  0##  Neednotcurrentlycountemployeeswithlessthan6 r:  monthsofservicei݌ ## Ќ      0  0 ##00 # #00 #0 #2(  4  )3  0##  Neednotcountemployeeswhonormallyworkless N  than17.5hrsperweek݌ ## Ќ      <0  0 ##00 # #00 #0 #2(  5  )3  0##  Breakinservice:mayhavetocountservicetimefor *  formeremployeeswhoarerehired<g݌ ## Ќ    d    d0  0 ##2  2  .3  00 # #  Circular230CostMultiplier d݌0 #0 # Ќ   r   r0  0 ##00 # #2  a  .3  00 #0 #  OneofthelateramendmentstoCircular230providesthat A  practitionermustnotgivewrittenadvice(includingelectroniccommunications)concerningoneormoreFederaltaxissuesifthepractitionerbasesthewrittenadviceonunreasonablefactualorlegalassumptions(includingassumptionsastofutureevents),unreasonablyreliesuponrepresentations,statements,findingsoragreementsofthetaxpayeroranyotherperson,doesnotconsiderallrelevantfactsthatthepractitionersknowsorshouldknow,or,innevaluatingaFederaltaxissue,takesintoaccountthepossibilitythatataxreturnwillnotbeaudited,thatanissuewillnotberaisedonaudit,orthatanissuewillberesolvedthroughsettlementifraised.r݌ ## Ќ   r   r0  0 ##00 # #2  b  .3  00 #0 #  Thisnewlanguageaddedwilltendtohavethefollowing  ! effects:r݌ ## Ќ      0  0 ##00 # #00 #0 #2(  1  )3  0##  EnrolledActuaries,TaxAttorneys,andAccountswill "! belessabletorelyuponthedataprovidedfromtheclientandwillbestatisticallyforcedtohavegreaterpersonaloversightandinspectionofcompanyrecordsandbookswhensigningdocumentsrelatingeithertoPBGCForm1orForm5500andassociateddocuments.Becausetheboilerplatelanguageabovecannotbeincorporatedintotheformsignatures,theonlychoiceisduediligence,resultinginariseinclientcosts./݌ ## Ќ      0  0 ##00 # #00 #0 #2(  2  )3  0##  Previoussystems,whereintheclientprovideddatato 2,'+ anaccountingservicewhoprovidedsummariestovariouspractitionersinturn,willeitherbeduplicatedbypractitionersdoingthesamejobtwice,orelsewillundergoashiftofservicestothepractitioners,atleastinpart.0݌ ## Ќ      C0  0 ##00 # #00 #0 #2(  3  )3  0##  Thecombinationoftheabovewilltendtofavormore  verticallyintegratedpractitionerswhocanbringthedatainvestigationandtreatmentfunctioninhouse.Cn݌ ## Ќ   r   r0  0 ##00 # #2  c  .3  00 #0 #  CombinedeffectofCircular230withtheadditionalduties  p underPPA2006willplaceanevengreaterburdenonEnrolledactuaries,especiallyastothedepthtowhichinvestigationsrelatingtotheirexpandeddutiesmustbeperformed,includingtargetattainmentpercentageand  endangeredorincriticalstatus#  #.r0݌N ## Ќ   r   r0  0 ##00 # #2  d  .3  00 #0 #  EnrolledActuariesSocietyhavebeenpressingtheIRSfor D  answerstospecificquestionsr݌ ## Ќ  ݜ    0  0 ##00 # #00 #0 #2(  1  )3  0##  Confirmationastowhether  establishmentor   maintenanceofaqualifiedretirementplanisatransaction, theprincipalpurposeofwhichistheavoidanceorevasionofanytaximposedbytheInternalRevenueCode(IRC).)݌ ## Ќ      #0  0 ##00 # #00 #0 #2(  2  )3  0##  Whetherm#  #  akingcalculationsandmeasurementsbased  onanunderstandingofthelawistantamounttogivinganopinionofthelaw.#N݌ ## Ќ       0  0 ##00 # #00 #0 #2(  3  )3  0##  Whetherc#  $#ommunicating,inwriting,theresultsof  actuarialcomputations"constitutestherenderingofacoveredopinion. 4݌ ## Ќ      0  0 ##00 # #00 #0 #2(  4  )3  0##  Themeaning,scopeandbreadthoftheexceptionin j Circular230enablingenrolledactuariesregardingtheestablishmentofthequalificationofaqualifiedplan.݌ ## Ќ      0  0 ##00 # #00 #0 #2(  5  )3  0##  GuidanceonclarificationoftheprovisionsofSection l 4 10.33outlining bestpractices.(Thiswouldseemtopointouta financialengineeringconflictbetweentheplanbeneficiarieswhoseekmaximumfundingtomaximallyinsureanabundantsupplyofretirementfundsversustheplansponsorswhoareseekingtosatisfyminimumfundinginordertosatisfytherulesandreducecosts.)݌ ## Ќ    d    dD0  0 ##2  3  .3  00 # #  TopHeavyGuarantees: dDo݌($'0 #0 # Ќ   r   rH0  0 ##00 # #2  a  .3  00 #0 #  Definition:Aplanbecomestopheavywhentheaccumulated )%( accruedbenefitsforparticipantswhoarekeyemployeesforaplanyearexceeds60%ofthepresentvalueoftheaccumulatedaccruedbenefitsforallemployees.Whenaplan ,J(+ becomestopheavyinanygivenyear,thereareINCREASEDminimumbenefitswhichmustaccruetoemployees.Itispossibletobe topheavyinsomeyearsandnotinothers.rHs݌ ## Ќ   r   r0  0 ##00 # #2  b  .3  00 #0 #  Keyemployees:r.݌## Ќ      0  0 ##00 # #00 #0 #2(  1  )3  0##  officersearningover$140,000peryear?݌## Ќ      S0  0 ##00 # #00 #0 #2(  2  )3  0##  5%orgreaterownerS~݌## Ќ      ~0  0 ##00 # #00 #0 #2(  3  )3  0##  1%orgreaterownerearningover$150,000~݌ ## Ќ      0  0 ##00 # #00 #0 #2(  4  )3  0##  maximumofeither:݌ ## Ќ       0  0 ##00 # #00 #0 #0##2(  a  )3  08##  50employeesor  ݌ p8#8# Ќ      $ 0  0 ##00 # #00 #0 #0##2(  b  )3  08##  greaterof3employees/10%ofallemployees$ O ݌ ^ 8#8# Ќ   r   r{ 0  0 ##00 # #2  c  .3  00 #0 #  Minimumtopheavybenefitsfornonkeyemployees:r{  ݌ L ## Ќ       0  0 ##00 # #00 #0 #2(  1  )3  0##  Definedbenefitplanmustnotbelessthan2%of r:  employeesaverageannualcompensation(maximumof20%).  ݌ ## Ќ      ?0  0 ##00 # #00 #0 #2(  2  )3  0##  Definedcontributionplanmustnotbelessthan3%of <  employeescompensation(exceptwheretheplanisrequiredtobepartofanaggregatedgroup).?j݌ ## Ќ      0  0 ##00 # #00 #0 #2(  3  )3  0##  WheretheemployerhasbothadefinedbenefitAND  definedcontribution,thecontributionsANDforfeituresof5%eachyearisapresumptivemeetingoftherequirements.Anemployergetscreditforforfeituresagainsttheemployerscontributions.%݌ ## Ќ      0  0 ##00 # #00 #0 #2(  4  )3  0##  Acceleratedvesting:26yearsinsteadof37yearsB݌t## Ќ      b0  0 ##00 # #00 #0 #2(  5  )3  0##  Removalof1000hourservicelimitanyserviceis b sufficienttocountforayearofserviceb݌ ## Ќ    d    d0  0 ##2  4  .3  00 # #  DiscriminationTesting d݌v>0 #0 # Ќ   r   r0  0 ##00 # #2  a  .3  00 #0 #  Basictestingtoinsurethatthenonhighlycompensated d, benefitpercentagedividedbythehighlycompensatedexceedsaratioof0.7.r݌ ## Ќ   r   r{0  0 ##00 # #2  b  .3  00 #0 #  Failingthebasictestin(a),asimilarratioofweightedbenefit . percentagesisappliedtoproducearatiowhichmaybeaslowas0.2andashighas0.4,dependingupontheconcentrationofnonhighlycompensatedemployeesinthetestinggroup.(In1996,highlycompensatedemployeesarethoseearningover$100,000in2006)r{݌ ## Ќ    d    d0  0 ##2  5  .3  00 # #  AmendmentstothePlan:increasesinallocationmustnotviolatethe $ # backloadingrules: d݌ 0 #0 # Ќ   r   r%0  0 ##00 # #2  a  .3  00 #0 #  133@percentrule:Increasesinanyperiodmustnotbemore &f"% than133@%oftheaccrualratesinanypriorperiod.r%P݌'T#&## Ќ   r   r0  0 ##00 # #2  b  .3  00 #0 #  Fractionalaccrualrule:Thenormaltheoreticalperiodfrom z(B$' beginningaccrualundertheplantonormalretirementmusthaveafractionalprogressionsothataccrualsatanygivenpointintimearenotgreaterthanthenormaladvanceontheregularadvanceoftime.r݌2,'+## Ќ   r   r0  0 ##00 # #2  c  .3  00 #0 #  Regularchangestoplanmustbeonorbefore15thdayofthe 8 10thmonthaftercloseoftheplanyear.r݌ ## Ќ   r   rF!0  0 ##00 # #2  d  .3  00 #0 #  Retroactivechangestotheplanmustbemade2.5months  aftercloseofplanyear(2yearsaftercloseofplanyearformultiemployerplans).rF!q!݌ ## Ќ  FundingReports  d    d"0  0 ##2  6  .3  00 # #  AdditionalDutiesderivingfromPensionProtectionActof2006 d"#݌ 0 #0 # Ќ   r   r$0  0 ##00 # #2  a  .3  00 #0 #  certificationthattheadjustedfundingtargetattainment   percentageoftheplanisnotlessthan100percentr$J$݌ ## Ќ   r   r%0  0 ##00 # #2  b  .3  00 #0 #  certificationrelatingtorequestsextendingamortization  ^  periodsr%%݌ ## Ќ   r   r&0  0 ##00 # #2  c  .3  00 #0 #  withinthe  90thdayofeachplanyear,theplanactuarymust r:  certifytotheSecretaryoftheTreasuryandtotheplansponsorwhetherornottheplanisinendangeredorincriticalstatus(failuretocertifycanresultinanERISApenaltyof#  '#  $1,100perday) #Ln(#Lnr&'݌J## Ќ  # ")##  d)#   r   r+*0  0 ##00 # #2  d  .3  00 #0 #  FundingImprovements:#  *#  Aftertheadoptionofafunding @ improvementplan,itmaynotbeamendedtoincreasebenefitsunlesstheplanactuarycertifiesthatthebenefitincreaseisconsistentwiththefundingimprovementplan#  $+#r+*V*݌"## Ќ   r   r,0  0 ##00 # #2  e  .3  00 #0 #  theconstructionofaseparate  mortalitytableuponrequestof  theplansponsorbytheactuarybasedonaplansownexperience #Lnd-#Lnr,,݌## Ќ  # -##  8.#     .2  V  .3  0    PROBLEMS ./݌z## Ќ        /0  2  A  .3  0 ##  ClawBackofPlanAssetsinExcessofPlanLiabilities //݌X # # Ќ    d    d00  0 ##2  1  .3  00 # #  Straightreturnofexcessmoneytothecompany:resultsina20% ~ F excisetaxonthemoneyreturnedtothecompany.Betteroptionmaybetosimplyreducefuturecontributionstotheplan. d00݌ 0 #0 # Ќ    d    d20  0 ##2  2  .3  00 # #  Planterminationfollowedbyreplacementplan:a50%excisetaxis H#! imposedonexcessfundsharvestedfromtheterminatedplan.Whereanemployeriswillingtoplaceatleast25%oftheexcessintothereplacementplan(ifthereisone),theexcisetaxrateontheremaining75%ofharvestedfundsdropstoa20%surtax.Further,the qualifiedreplacementplanmustbenefitatleast95%oftheprioractiveparticipantsisinstituted d22݌ 0 #0 # Ќ        350  2  B  .3  0 ##  FailuretoPayOuttheMinimumRequiredDistributionunderIRC4974(a) 35^5݌)%( # # Ќ    d    dX60  0 ##2  1  .3  00 # #  Wheredistributionsarelessthantheminimumrequireddistributions, *&) a50%excisetaxappliestothedifference. dX66݌ 0 #0 # Ќ   r   r70  0 ##00 # #2  a  .3  00 #0 #  Minimumdistributionsmustoccur:r77݌,\(+## Ќ      80  0 ##00 # #00 #0 #2(  1  )3  0##  inthecalendaryearinwhichtheemployeereachesage 8 70.5(orApriloftheyearafterage70.5forIRAholdersand5%businessowners)89݌ ## Ќ      :0  0 ##00 # #00 #0 #2(  2  )3  0##  inthecalendaryearinwhichtheemployeeretires::݌## Ќ   r   r;0  0 ##00 # #2  b  .3  00 #0 #  Distributionsmustbemadeover:r; <݌## Ќ      =0  0 ##00 # #00 #0 #2(  1  )3  0##  theemployeeslife=.=݌## Ќ      1>0  0 ##00 # #00 #0 #2(  2  )3  0##  thelivesoftheemployeeandtheemployees   beneficiary1>\>݌ ## Ќ      ?0  0 ##00 # #00 #0 #2(  3  )3  0##  aperiodthatdoesnotextendbeyondtheemployees  p lifeexpectancy??݌ ## Ќ      @0  0 ##00 # #00 #0 #2(  4  )3  0##  aperiodthatdoesnotextendbeyondthejointlifeand  L  lastsurvivorlifeexpectancy.(NotethatPPA06hasincreasedthenotificationperiodfrom90to30180days@%A݌ ## Ќ        B0  2  C  .3  0 ##  FiduciaryProblems:theplanmustnameatleast1fiduciary,i.e.,someone <  whoexercisesanydiscretionaryauthorityorcontrolofthemanagementofaplanordispositionofitsassets,and: BB݌  # # Ќ    d    dhD0  0 ##2  1  .3  00 # #  hasresponsibilitytoseethattheplanrulesandlawsareobeyed dhDD݌0 #0 # Ќ    d    dE0  0 ##2  2  .3  00 # #  maychargeafeeforservices dEE݌0 #0 # Ќ    d    dF0  0 ##2  3  .3  00 # #  may/maynotbeaninvestmentmanager.bank,orinsurancecompany dFF݌0 #0 # Ќ    d    dG0  0 ##2  4  .3  00 # #  canmanage,acquireanddisposeofplanassets dGG݌0 #0 # Ќ    d    dH0  0 ##2  5  .3  00 # #  acknowledgesinwritingthatheisafiduciary dHI݌0 #0 # Ќ    d    d J0  0 ##2  6  .3  00 # #  issubjecttoa15%federaltaxonanyimpropertransactionswiththe t plan,asareother disqualifiedpersons,including:spouse,serviceprovider,andANYfamilymembersofthesepersonsorofthefiduciary.IRC4975. d J8J݌ 0 #0 # Ќ        K0  2  D  .3  0 ##  MinimumRequiredContributions(newlyaddedIRC430) KL݌d, # # Ќ    d    dM0  0 ##2  1  .3  00 # #  FundingShortfallcontributionrequirespaymentof(A)thetarget R normalcostoftheplan+(B)theshortfallamortizationcharge+(C)thewaiveramortizationcharge(ifany). dM-M݌ 0 #0 # Ќ    d    dN0  0 ##2  2  .3  00 # #  Fundingfornonshortfallcontributionrequirespaymentofthetarget   normalcostfortheplanfortheplanyearsMinimumRequiredContributions(newlyaddedIRC430) dNN݌ 0 #0 # Ќ        WP0  2  E  .3  0 ##  Noplanamendmentsmayincreasebenefitsifthefundingtargetattainment "! percentageisorwouldbecomelessthan80%(newlyaddedIRC436) WPP݌  # # Ќ    d    dQ0  0 ##2  1  .3  00 # #  Exceptionforbenefitsincreasesrelatedsolelytoincreasesinsalary dQQ݌$ #0 #0 # Ќ    d    dS0  0 ##2  2  .3  00 # #  Furtherlimitationsonprohibitedpaymentsiftargetis6080% dS-S݌%x!$0 #0 # Ќ        /T0  2  F  .3  0 ##  OtherLimitations: /TZT݌&f"% # # Ќ    d    dU0  0 ##2  1  .3  00 # #  Employeecompensationcanbeconsideredincomputingaccruals, 'T#& butonlyupto$220,000. dUGU݌ 0 #0 # Ќ    d    dnV0  0 ##2  2  .3  00 # #  Astatutorymaximumbenefitlimitof$170,000,reducedbyseveral h)0%( factors,including(1)earlyretirement,(2)lessthan10yearsservicebeforeretirement,and(3)increasesinplanbenefitslessthan5yearsago. dnVV݌2,'+0 #0 # Ќ    d    dGX0  0 ##2  3  .3  00 # #  Definedcontributionplanhasan annualadditionlimitation 8 (annualaddition=sumofemployercontributions,employeecontributionsandforfeitures)ofnomorethanthelesserof$40,000ora100%limitoftheemployeeswage. dGXrX݌ 0 #0 # Ќ    d    d0Z0  0 ##2  4  .3  00 # #  Limitationsonlumpsumdistributions:(110%rule)iflessthan  110%oftheremainingcurrentliabilitiesforotheremployees(measuredafterthereductionincurrentliabilityfortheemployeeseekingthelumpsumwithdrawal)isnotmorethanthemarketvalueofassetsminustheproposedlumpsumvalueofaccruedbenefitsdistribution. d0Z[Z݌ 0 #0 # Ќ    d    d\0  0 ##2  5  .3  00 # #  Limitationsonmergerofacashrichplanwithacashpoorplan;  L  creationofaspecialschedulebaseduponthefollowingPensionBenefitGuarantyCorporation(PBGC)prioritylevels: d\\݌ 0 #0 # Ќ   r   r/^0  0 ##00 # #2  a  .3  00 #0 #  voluntaryemployeecontributionsr/^Z^݌N ## Ќ   r   rR_0  0 ##00 # #2  b  .3  00 #0 #  mandatoryemployeecontributionsrR_}_݌< ## Ќ   r   ru`0  0 ##00 # #2  c  .3  00 #0 #  benefitswhichare/wouldhavebeen inpaystatuswithin3 *  yearsofterminationundernormalcircumstancesru``݌ ## Ќ   r   ra0  0 ##00 # #2  d  .3  00 #0 #  otherPBGCguaranteedbenefitsra b݌## Ќ   r   rc0  0 ##00 # #2  e  .3  00 #0 #  nonforfeitablebenefitsundertheplanrcAc݌## Ќ   r   r@d0  0 ##00 # #2  f  .3  00 #0 #  allotherplanbenefitsr@dkd݌## Ќ    d    dZe0  0 ##2  6  .3  00 # #  RelaxationonsomerulesLimitationsoninservicedistributions dZee݌0 #0 # Ќ   r   rf0  0 ##00 # #2  a  .3  00 #0 #  startofdistributionofbenefitsrelaxedto62rff݌## Ќ   r   rg0  0 ##00 # #2  b  .3  00 #0 #  hardshipdistributionsallowedfordesignatedbeneficiariesrgg݌t## Ќ        h0  2  G  .3  0 ##  PlanTermination&Insurance:planterminationistheinsurableevent h$i݌b # # Ќ    d    dj0  0 ##2  1  .3  00 # #  Typesofterminations: djDj݌P0 #0 # Ќ   r   rk0  0 ##00 # #2  a  .3  00 #0 #  VoluntaryrkIk݌v>## Ќ   r   r*l0  0 ##00 # #2  b  .3  00 #0 #  Distressr*lUl݌d,## Ќ   r   r5m0  0 ##00 # #2  c  .3  00 #0 #  Involuntaryr5m`m݌R## Ќ    d    dCn0  0 ##2  2  .3  00 # #  Conditionsunderwhichaplanmaybeinadvertentlyterminated dCnnn݌@0 #0 # Ќ   r   rqo0  0 ##00 # #2  a  .3  00 #0 #  Minimumfundingnotmetrqoo݌.## Ќ   r   rp0  0 ##00 # #2  b  .3  00 #0 #  Planunabletopaybenefitswhenduerpp݌ ## Ќ   r   rq0  0 ##00 # #2  c  .3  00 #0 #  Reportableeventhasoccurred(IRC4043(b)(7))rqq݌ !## Ќ   r   rr0  0 ##00 # #2  d  .3  00 #0 #  LongtermlossofPBGCmayincreaseifplannotterminated.rrs݌! ## Ќ    d    d&t0  0 ##2  3  .3  00 # #  Insuranceamount:$1in1974,$2.60in1977,$8.50in1985,$16in "! 1995,$19in204andcurrently$30peremployee($8formultiemployerplans),withavariableratepremiumof$9perevery$1000ofunfundedvestedbenefits.AvariableratepremiumcanbeavoidedundertheFullFundingLimit(FFL)exemptionofIRC412(c)(7),butitrequiresmeetingthenewfullfundinglimitationofmadebytheRetirementProtectionActof1994. d&tQt݌ 0 #0 # Ќ      v2  VI  .3  0    THEPLANVERSUSOTHERENTITIESANDLAWSvw݌V*&)## Ќ        w0  2  A  .3  0 ##  Exclusiveremedyisabigfactorincuttingoffsuitsrelatingtopensions 4,'+ underotherstatutes.MostofthecontroversialcasescontinuetorelatetotheexclusivityoftheERISAremedy. ww݌  # # Ќ        ry0  2  B  .3  0 ##  ERISA510givesexclusiveprivatecauseofaction.Thereissome  overlapwiththeADEAAmericanswithDisabilitiesActof1999whichprohibitsdiscriminationagainsttheterms,conditions,andprivilegesofemployment.ThereisnoERISAprovisionforintentionalinflictionofemotionaldistress: Nointerferenceunlesstheconductofthecompanywasoutrageous,and514willnotpreemptthisprovisionandsubstitutethemechanicsof510. ryy݌  # # Ќ        (|0  2  C  .3  0 ##  ERISA514preemptionhasblockedcausesofactionfor: (|S|݌ ^  # # Ќ    d    d=}0  0 ##2  1  .3  00 # #  Statelawsrelatingtootheremployeebenefitplanslikehealth  L  insurance. d=}h}݌ 0 #0 # Ќ    d    d~0  0 ##2  2  .3  00 # #  Statelawswhichattempttoregulatedirectlyorindirectlytheterms `(  andconditionsofaplan. d~~݌ 0 #0 # Ќ        0  2  D  .3  0 ##  Notpreemotedarethefollowing: ݌<  # # Ќ    d    d؀0  0 ##2  1  .3  00 # #  InsuranceCompanies:Ifaplanisinsured,thestatemayregulateit *  indirectlyviadirectinsuranceregulationofinsurersgenerally.Ifaplanisuninsured,astatemaynotregulateit. d؀݌ 0 #0 # Ќ    d    d0  0 ##2  2  .3  00 # #  StateCriminalLaw d݌0 #0 # Ќ      2  VII  .3  0    ESOP݌## Ќ        e0  2  A  .3  0 ##  TwotransactionsinvolvingESOPhavebeenaddedtothenew,more v stringentIRSCircular230governingtaxprofessionalswhorenderopinionsrelatedtotaxplanning.Appendix Aprovidesacopyofthecurrentlistedtransactions(whichthepractitionershouldnotrelyupontheIRSwebsiteshouldbecheckeddailyfornewadditions!)Practitionersarefurtherrestrictedinhandlingthefollowingretirementplanproblemsbyvirtueoftheirbeinglistedonthe prohibitedtransactionslist: e݌  # # Ќ    d    dI0  0 ##2  1  .3  00 # #  401(k)accelerateddeductions dIt݌00 #0 # Ќ    d    dU0  0 ##2  2  .3  00 # #  ScorporationESOPabuseofdelayedeffectivedateforIRC   409(p) dU݌ 0 #0 # Ќ    d    d0  0 ##2  3  .3  00 # #  CollectivelybargainedwelfarebenefitfundsunderIRC419A(f)(5) d݌! 0 #0 # Ќ    d    dˊ0  0 ##2  4  .3  00 # #  Certaintrustarrangementsseekingtoqualifyforexemptionfrom "! IRC419 dˊ݌ 0 #0 # Ќ    d    d0  0 ##2  5  .3  00 # #  AbusiveRothIRAtransactions d>݌$ #0 #0 # Ќ    d    d0  0 ##2  6  .3  00 # #  ScorporationESOPabuses:businessstructuresheldtoviolateIRC %z!$ 409(p) dJ݌ 0 #0 # Ќ    d    dh0  0 ##2  7  .3  00 # #  DeductionsforexcesslifeinsuranceinanIRC412(I)orother 'V#& definedbenefitplan dh݌ 0 #0 # Ќ      2  VIII  .3  0    OVERVIEWOFTHETAXEFFECT ݌X* &)## Ќ        0  2  A  .3  0 ##  Toachievethedeferredwagetheory,theERISAsystemallows Ґ݌6,'+ # # Ќ    d    d0  0 ##2  1  .3  00 # #  deductibilityofpensionmoneyassetasidebytheemployerand d݌80 #0 # Ќ    d    d0  0 ##2  2  .3  00 # #  includabilityofpensionmoneyinretireeincomewhenpaidout, & whetherqualifiedornonqualified. d݌ 0 #0 # Ќ        J0  2  B  .3  0 ##  ERISArestrictspensionforfeitability. Ju݌ # # Ќ        L0  2  C  .3  0 ##  Thenameofthegameisprovidingabenefittolesserpaidemployeeswhich  ispermissiblysmallerthanbenefitspaidtohigherpaidemployees. Lw݌  # # Ќ      Ŗ2  IX  .3  0    CASHBALANCEPLANCONVERSION Ŗ݌ ## Ќ        0  2  A  .3  0 ##  TraditionalDefinedBenefitsPlan&DefinedContributionPlans ؗ݌ `  # # Ќ    d     dƘ0  0 ##2  1  .3  00 # #  Traditionaldefinedbenefitplanstypicallyusesomemeasureof  N  serviceinyearsmultipliedbysomepercentageofcompensation,theresultofwhichisthenmultipliedbysomemeasureofsalary.Employersarerequiredtosetasideanamountofcashnecessarytofundthedefinedbenefitsatage65.However,becauseeachadditionalmeasureofbenefitatage65haslesstimetogrowwhenitisearned,forexample,atage55ratherthanage35,itthereforehastobefundedatahighertimevalueofmoneyrate. dƘ݌ 0 #0 # Ќ    d     d0  0 ##2  2  .3  00 # #  Althoughtheserviceyearsandsalaryinputsintotheformulaappear  toincreaselinearly,thecostsofmaintainingaprojectedage65retirementbenefitareexponential.Thetraditionaldefinedbenefitplanfundingcostsriserapidlyastheworkerapproachesage65becauseof:   d݌v0 #0 # Ќ   r    r0  0 ##00 # #2  a  .3  00 #0 #  theaforementionedlackoftimeavailabletoinvestasmaller d amounttoeventuallygrowthroughinterestaccumulationstoreachthevaluerequiredat65,andr݌ ## Ќ   r    r0  0 ##00 # #2  b  .3  00 #0 #  theemployeescontinuallyrisingsalarywhichismultiplied f. overALLyearsofservicestodeterminethemonthlybenefit.r݌ ## Ќ    d     d 0  0 ##2  3  .3  00 # #  Thetraditionaldefinedcontributionplansetsarateatwhich B  companyfundsarecontributedtotheplan,typicallysomepercentageofsalarypaidouteachyear.Insomecases,thedefinedcontributionneednotevenbeapercentageofsalarybutcanbeaflatcontribution.Assuch,adefinedcontributionplanenablesacompanytohaveayearlyinputwhichisflatatbest;atworst,yearlyinputnearlylinearlyincreaseswithsalaryincreases.Responsibilityfortheexponentialgrowthpotentialrestsontheemployeesshoulders:thekeyisparticipatinginsuchplansearlyenoughtovest.Thelongtermemployee,orthelongtermworkerwhereseveralsuchplansarevested,canproduceanearlyexponentialresultwhenmeasuredasaratemultiplierforthedollarscontributedyearly. d K݌ 0 #0 # Ќ    d     d80  0 ##2  4  .3  00 # #  ThecourtinCooperv.IBM243FSupp.2d1010(S.D.Ill.2003), j)2%( definesthedifferencemoregenerally: Adefinedcontributionplaniseasytodescribeandunderstand.Thesponsoringemployercontributesaspecifiedamountintoaseparateaccountforeach 4,'+ employee.Therisksandrewardsoftheinvestmentarebornebytheemployee.Theemployerdoesnotguaranteeaparticularresultandisoffthehook.However,thereisnoopportunityfortheemployertoearnpensionincomeorreducetherealcostsofcontributionsspecifiedintheplan.Inthistypeofplan,thesponsoringemployersperformanceismeasuredbywhatitputsintotheplan.Adefinedbenefitplanisadifferentcreature.Thesponsoringemployerpromisesacertainresultbaseduponaformulaspecifiedintheplan.Theemployermustdeliveronthepromiseirrespectiveofhowthefundssetasideforthispurposefareinthefinancialmarkets.Here,theemployerisliterallyonthehookbuthastheopportunitytoearnpensionincomeandreducetherealcostsoffundingapensionforemployees.Inthistypeofplan,thesponsoringemployersperformanceismeasuredbywhatcomeoutoftheplanintermsofbenefits. d8c݌ 0 #0 # Ќ         0  2  B  .3  0 ##  HistoryofConversion A݌*  # # Ќ    d     d0  0 ##2  1  .3  00 # #  OneaspectoftherulesunderERISAisthatanypensionearningsof  thepastcannotbereduced.Acompanycanhaveoneplantodayandanotherplantomorrow,butthebenefitsearnedunderthefirstplanatthetimeofitsterminationmustnotbereduced.Companieshavealwayshadtheoptiontostopaplanandstartanotherone. d1݌0 #0 # Ќ    d     dZ0  0 ##2  2  .3  00 # #  However,therearespecificrules(andaseriesofsteps)which  requirethatadefinedbenefitplan terminatewithoutadeficit.Definedbenefitplansarenotoriousforhavingalaggingfundingstandard,meaningthat,atanygiventime,thecompanymaybealittlebehindinitsfundingcontributions.Terminationofaplancausesallsortsofalarmstogooffandrequiresthecompanytoinsurethatthefundiscompletelyfunded. dZ݌ 0 #0 # Ќ    d     d 0  0 ##2  3  .3  00 # #  Whenfacedwithachoiceofeither(1)endingadefinedbenefitplan @ or(2)givingintothetemptationtotrytomorphadefinedbenefitplanintosomethingthathasdefinedcontributioncharacteristics,employerschosethelatter.Itwashopedthatthis compromiseplanwouldamelioratetheeffectofhavingtomeettheinordinatelyhigherrapidriseinfundingrequirements(especiallyforemployeeshavinglittleinterestgrowthtimeandahighsalarylevel). d 8݌ 0 #0 # Ќ    d     d0  0 ##2  4  .3  00 # #  Indeed,thecourtinIBMv.Cooperstated, IBMcouldhave $ # accomplishedwhatithastodatebyterminatingthedefinedbenefitplanandmovingtoadefinedcontributionplan. d ݌ 0 #0 # Ќ   r    r0  0 ##00 # #2  a  .3  00 #0 #  TheDecision:severalpreviouscashbalanceconversionplans 'T#& withstoodcourtchallenges.Sowhywouldadistrictcourtdecisiononasingleplancausesuchatidalwaveeffectinthepensionindustry?Thedistrictcourtdecisionillustratedthatanycashbalanceplanconversionisloadedwithproblems.rõ݌D+ '*## Ќ   r    r0  0 ##00 # #2  b  .3  00 #0 #  Problems,whichreallycannotbeeliminated,include:r݌2,'+## Ќ       0  0 ##00 # #00 #0 #2(  1  )3  0##  Anycapwhichcausesanolderworkertoaccrueless 8 thanayoungerworkerwillbeconsideredagediscrimination(eventhoughadefinedcontributionfromanolderworkerwillhavealessereffectonthedefinedcontributioncashaccount).I݌ ## Ќ       /0  0 ##00 # #00 #0 #2(  2  )3  0##  Theterm rateofbenefitaccrualinadefinedbenefit  planhasspecificmeaninganddictatesthatrelateto   benefitswhichareimmediateuponterminationofemployment.Thus,indefinedbenefitplansitisrequiredthattheRATEoftheincreaseinretirement  ^  benefitsatage65beproportionalacrossallagesandsalaries(eventhough,inadefinedcontributionplan,contributionsatearlycareerhaveamuchhigherimpactuponthecashaccountatage65thanthelastdollarofcontributionthedaybeforetheworkerturns65).Asaresultofthis strictdichotomybetweendefinedbenefitanddefinedcontributionsplans,asstatedbytheplaintiffinCooper,argumentsdirectingattentiontothetimevalueofmoneyasasourceofanyunfairnesswillnotbeheard./Z݌ ## Ќ         0  2  C  .3  0 ##  ChangestotheLaw Ŀ݌ # # Ќ    d     d0  0 ##2  1  .3  00 # #  Inresponsetotheabovecaseholding,congresspassedIRC1783in  early2006.Thenewlawprovidesthat(A)INGENERAL."Aqualifiedcashbalanceplanshallnotbetreatedasviolatingtherequirementsofparagraph(1)(H)merelybecauseitmayreasonablybeexpectedthattheperiodoverwhichinterestcreditswillbemadetoaparticipantsaccumulationaccount(oritsequivalent)islongerforayoungerparticipant.Thisparagraphshallnotapplytoanyplaniftherateofanypaycreditorinterestcredittosuchanaccountundertheplandecreasesbyreasonoftheparticipantsattainmentofanyage. d݌ 0 #0 # Ќ    d     d0  0 ##2  2  .3  00 # #  Congressseemstobesayingthattheoneaspectofanyplanwhich  ! canbeaccountedfor,regardlessofwhetheritisadefinedbenefitordefinedcontributionplan,isthetimevalueofmoneyeffect.TheIBMv.Coopercaseillustratedtheuseofanarbitrarysetof #" multipliersfromatablewhichincludedmorethananinterestrate $ # effect.Thechangeinthelawsetsupalitmustestinwhichthesameplanshouldproducethesameresultfordifferentagedpeople,solongaseachretireeisconsideredasworkingthesamenumberofyears.Putanotherway,theonlydifferencebetweenpayoutsfor z(B$' differentemployeeshastobebaseduponthetimevalueofmoney. d)݌ 0 #0 # Ќ    d     d0  0 ##2  3  .3  00 # #  Nospecific,quantitativeguidancehasyetbeenputintoplacesuch V*&) thatanyoneperformingaconversioncanrelyuponitinjustifyingaconversion.Inaddition,anyconversionofatypicaldefinedbenefit 2,'+ plantoacashbalanceplanmay,ofnecessity,involveanageeffect.Thegeneralincentivetoconvertistoavoidthemultiplicativeeffectofaddinganadditionalyearsfractionofretirementbenefits(measuredasamonthlypaymentatage65)atamultiplicativeriseinsalary(throughpromotionsandincreasesduetoinflation). d ݌ 0 #0 # Ќ    d     d0  0 ##2  4  .3  00 # #  Giventhattherealinputrequirementsfordefinedbenefitplansrise  sharplyastheemployeesapproach65,andthattheriseisbaseduponcomponentsotherthanthetimevalueofmoneyfactor,anyconversionwhichwouldhavetheeffectof flatteningtheperemployeeorperdollarofsalarywouldhaveadisproportionatelydisparateeffectonolderworkers.Inaddition,theholdinginIBMv.  L  Cooper,reemphasizedin1783,unambiguouslyindicatesthat r:  definedbenefitsplansarecompletelydifferentfromdefinedcontributionplans. d9݌ 0 #0 # Ќ    d     dZ0  0 ##2  5  .3  00 # #  Theagediscriminationprovisionsnotonlyrelatetoadiminutionof <  accrualrates,butalsotoanyagebasedactioninaplan,includingcessationofparticipationintheplan,ordiscontinuanceofanelementofbenefitaccrualonaccountofhavingattainedanyage.Undernocircumstanceswilladefinedbenefitplanpassagediscriminationmusterifanyparticipantsrateofbenefitaccrualfortheplanbenefityearwouldbehighermerelybecausetheparticipantwouldbeyounger.Theintendedruleshaveblessedtheuseof percentageofcompensationasameasuringdevice.(20032I.R.B.)Thisdevicewouldenablehigherpaidworkerstogeneratemoreaccruedbenefits,whichisinlinewiththeotherprovisionsoftheERISAsystem. dZ݌ 0 #0 # Ќ    d     dE0  0 ##2  6  .3  00 # #  TheAppellatecourt,intheCoopercase,XX Cooperv.IBMPersonal d, PensionPlan(7thCir.Ct.App.Aug7,2006)CaseNumber:053588,sidedwiththe, + p+ , . - Pl- . / planadministrator,withtheopinionreferringto/ 0 proposedtreasuryregulationsandcommentsaboutfreeenterpriseandthepreferredpolicyfor0 1 0 the0 1 2 freedomofchoiceincraftingretirementplans.2 3  d݌ 0 #0 # Ќ  3 # XX# dEp݌0 #0 # Ќ    d     d0  0 ##2  7  .3  00 # #  RecentCommentaryintheEnrolledActuariesReportindicatesthat   thecourtsdontconsiderthatthelanguageoftheearly2006statutewillsolvetheproblem.InthecaseofinInReJ.P.MorganChase "j! CashBalanceLitigationinNewYorksSouthernDistrict,the #X" plaintiffisarguingthatforadefinedbenefitsplan,themeremaintenanceofcontributionsonaccountofaparticipantinadefinedbenefitplanisnotenough,andthatadefinedbenefitplandemands Z&""% thatthe rateofcontributionsmustactuallyINCREASEastheemployeegetsolderinordertoavoidanagediscriminationviolation. d݌ 0 #0 # Ќ  ݛ  d     d(0  0 ##2  8  .3  00 # #  Conclusion:companieshavingdefinedbenefitplanswhodesireto *%) limittheirexpenditurestothosemoreinlinewithdefinedcontributionplanshaveonlyonesafechoice:theymustterminate +'+ theirdefinedbenefitplansandimplementacompletelynewdefinedcontributionplan.Therisksandcostsassociatedwithterminatingthedefinedbenefitplanarecertain,especiallyinviewoftheargumentsoverthewordingintheJ.P.Morgancase. d(S݌ 0 #0 # Ќ         0  2  D  .3  0 ##  WhyIBMv.Cooperhashadachillingeffect ݌ # # Ќ    d     d0  0 ##2  1  .3  00 # #  Facts: d)݌0 #0 # Ќ   r    r0  0 ##00 # #2  a  .3  00 #0 #  IBMhadatraditionalDefinedBenefitplanuntil1995.They   adoptedawackychangetoanewdefinedbenefitplanwhichsetupatheoretical pensioncreditformulaplan(PCF)whichdisembodiedtheplanfromthetraditionaldefinedbenefitstraightmultiplicationofyearsofservicemultipliedbyaspecifiedpercentagemultipliedbyendingorhighaveragesalary.ThePCFused:r݌ ## Ќ       0  0 ##00 # #00 #0 #2(  1  )3  0##  basepoints(whichwerebasedonageinyearworked N  andcappedifaworkerhadbeenworkingtheretoolong)݌ ## Ќ       0  0 ##00 # #00 #0 #2(  2  )3  0##  excesspointsforsalaryearningsabovesocialsecurity?݌## Ќ       c0  0 ##00 # #00 #0 #2(  3  )3  0##  a5stepformulaterminatingindivisionbya benefit  conversionfactor,anumberwhichincreasesbaseduponage.c݌ ## Ќ   r    r0  0 ##00 # #2  b  .3  00 #0 #  AsecondplanadoptedinJuly,1999convertedtheprevious  plantoa cashbalanceformula(CBF)whichincluded paycreditsand interestcredits.Thisplanwasalittlemoresanethanthecomplicated5stepPCFformula,inthatitlookedmuchlikeadefinedcontributionplan.ThisplanfailedunderCooperr+݌ ## Ќ    d     dY0  0 ##2  2  .3  00 # #  Conclusion:eventhoughdefinedbenefitplansanddefined d, contributionplansoccupythesamechaptersoftheIRCandoftenhavecommonprovisions,therecanbenomixingbetweenthem.Practitionerscannotborrow. dY݌ 0 #0 # Ќ       /2  X  .3  0    NONQUALIFIEDPLANS /Z݌ !## Ќ         0  2  A  .3  0 ##  Involuntary:aplanlosesitsqualifiedstatusduetodiscriminationrules,or "! otherviolations  8݌  # # Ќ    d     dS0  0 ##2  1  .3  00 # #  IRScanpenalizebydisallowingpreviousdeductionsfor H!  $ # contributionstotheplan. dS~݌ 0 #0 # Ќ    d     d0  0 ##2  2  .3  00 # #  Otherpossiblepenaltiesforviolationsrelatedtobecomingnon @!  &h"% qualifiedrangefromexcisetaxesontransactionstochargesoftaxevasion d݌ 0 #0 # Ќ    d     d@0  0 ##2  3  .3  00 # #  Highlycompensatedemployeescanhaveincomesrecalculatedto @"  j)2%( includepensioncontributionsintotheirincome. d@k݌ 0 #0 # Ќ         0  2  B  .3  0 ##  Operatingasnonqualifiedinitially ݌F+'* # # Ќ    d     d0  0 ##2  1  .3  00 # #  Profitscanbecapitalizedindesignatedaccountsanddeductedwhen @|#  4,'+ paidout. d݌ 0 #0 # Ќ    d     d 0  0 ##2  2  .3  00 # #  Ifthisfundislargeenoughitwillhavetobejustifiedorelsetaxmay & becomedueandowingontheexcessamountscapitalized. d 6݌ 0 #0 # Ќ         0  2  C  .3  0 ##  Accidentallycreatingaplan ݌ # # Ќ    d     d~0  0 ##2  1  .3  00 # #  ݀Settingupinternalmechanismswherebypromisesaremadeor  fundsarecreatedcanresultintheinadvertentformationofaplanhavingERISAguarantees. d~݌ 0 #0 # Ќ    d     d0  0 ##2  2  .3  00 # #  Whereoneemployeeisgivenaseveranceorthepurchaseofan   annuity,otheremployeesmaychallengeunderERISAfornothavingbeenprovidedthesameopportunity. d@݌ 0 #0 # Ќ         0  2  D  .3  0 ##  NewlyenactedIRC409Aputsadditionalrestrictionsonnonqualified  L  plansandhighlightsothermechanismsforprovidingemployeeincentives,includingstockoptions.