Today, President Bush signed H.R. 4, the Pension Protection Act of 2006 (the “Act”). The Act makes significant changes to many provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and the Internal Revenue Code of 1986, as amended (the “Code”), such as strengthening funding rules, adding certain notice requirements, encouraging automatic enrollment in certain plans, clarifying rules for cash balance plans and changing some of the fiduciary and prohibited transactions rules of ERISA and Section 4975 of the Code. This Client Advisory will focus on Section VI of the Act which:
(1) changes the “25% test” for determining whether an entity is deemed to hold “plan assets”;
(2) adds a number of statutory prohibited transaction exemptions;
(3) adds a correction period during which certain prohibited transactions could be corrected without incurring the Code Section 4975 excise tax; and
(4) changes the ERISA bonding rules.
Except where otherwise noted, each of these provisions will become effective on August 18, 2006.