Key Retirement Plan Provisions in the Pension Protection Act

In our last Newsletter (Fall 2006) we discussed key charitable contribution provisions included in the Pension Protection Act of 2006. In this issue we summarize some of the more noteworthy changes impacting retirement plans.

Improvements to 401(k) and Other Pension Plans - The Act includes qualified plan changes intended to make retirement saving easier for employees:

The maximum vesting schedule for employer discretionary contributions was reduced to a 6 year graded schedule or a 3 year cliff schedule.

• Rules were added to make automatic enrollment in a 401(k) more attractive to plan sponsors.
• The following previously-enacted enhancements that were set to expire in 2010 were made "permanent:"
• Higher annual contribution limits for 401(k) plans
• Catch-up contributions for those 50 or older
• Higher deduction limits for profit sharing plans
• Roth 401(k) options
• Tax credit for low-income workers for retirement contributions up to $2,000.

Enhancements to IRAs - The Act makes a number of changes to traditional and Roth IRAs, including, most significantly:


• Starting in 2007, tax-free rollovers are permitted from a deceased person's IRA or qualified plan account to a non-spousal beneficiary's IRA. A new IRA, which must be titled "decedent’s name FBO beneficiary’s name," will need to be established to receive the funds. Rolled over funds should not be commingled with an existing IRA because the inherited IRA will have different distribution rules. This change will enable much longer distribution periods for some qualified plan beneficiaries.

Kathy Jaeger
kjaeger@ddfky.com