We have finished a major update to the web site for the 2007 required IRS amendments and the Summary of Material Modifications (SMM) that may be required for the Pension Protection Act (PPA) provisions that go into effect in 2007. Several checklist questions have been added to accommodate the amendment/SMM package. Please note that all retirement plan documents prepared after October 17 will contain the 2007 required amendments and all Summary Plan Descriptions will contain the 2007 PPA provisions.

Later updates will include the required notice for the Qualified Automatic Contribution Arrangement (the new safe harbor 401(k) known as a "QACA") and the Eligible Automatic Contribution Arrangement (the late refund feature known as "EACA"), both of which go into effect in 2008. We are waiting for anticipated IRS guidance on the required content before we draft and release the notices which will likely be due at least 30 days before the start of the plan year. In addition, any required participant form changes will be made at the time the site is updated for the automatic enrollment feature.

Batch Amendment and Compliance List

Each required 2007 amendment package includes a Board Consent, an SMM for the PPA provisions effective in 2007 (if necessary) and an amendment. The amendment package may be generated individually or using our batch feature.

A list of the defined contribution plans and defined benefit plans may be generated by clicking on the "Print Compliance List" link from the Admin Menu or by clicking on the "List Defined Contribution [or Defined Benefit] Plans - Plan name order" link on the 2007 Required Amendment Batch menu which is found on the plan document generation page.

2007 Interim Amendments

On August 28, 2007, the IRS published a list of statutory and regulatory changes on its website that it determined would require an Interim Amendment to a qualified plan in 2007. This list (the "2007 List of Amendments") may be found at (http://www.irs.gov/retirement/article/0,,id=173372,00.html). This list included three items that were labeled as Interim Amendments.

Normal Retirement Age. Under a recent revision to the section 401(a) regulations, a plan's normal retirement age (NRA) cannot be earlier than the typical retirement age for the industry in which the covered work force is employed. An NRA of age 62 or later is deemed to satisfy this requirement but an NRA under that age may or may not satisfy the requirement. These new regulations were generally effective as of May 22, 2007 so that an Interim Amendment would be required for the 2007 year.

However, the IRS gave certain relief from the immediate amendment requirement for the new NRA regulations in IRS Notice 2007-69. To be eligible for the relief offered in this Notice, a plan participant hired at age 18 or older cannot attain the plan's NRA before the age of 40. If eligible, a plan will not need to be amended until the later of (a) the last day of the first plan year beginning after June 30, 2008, or (b) the due date (including extensions) for filing the employer's income tax return for the employer's taxable year that includes the first day of the first plan year beginning after June 30, 2008. Plans that do not qualify for the relief must be amended by the later of: (1) the due date (including extensions) for filing the income tax return for the employer's taxable year that includes May 22, 2007 or (2) the last day of the plan year that includes May 22, 2007.

As noted in our September 25, 2007 Technical Update regarding Plan Termination Amendments, Part V of Notice 2007-69 stated that: "[t]he Service and Treasury expect that a plan under which a participant's normal retirement age changes to an earlier date upon completion of a stated number of years of service typically will not satisfy the vesting or accrual rules of sec. 411. See, e.g., sec. 1.411(b)-1(b)(2)(ii)(F)." Our Defined Benefit Plan allows a sponsor to select a normal retirement option that is the earlier of attainment of a stated age or completion of a stated number of years of service. Such a provision would appear to violate the informal rule specified in Part V of Notice 2007-69. Our checklist, therefore, has been updated to provide an error message when normal retirement age is defined under the age and credited service option. (If you use this provision and click "OK" to the edit check/warning, the amendment will print using the NRA you included in the checklist. The SPD will include the NRA stipulated in the checklist but the SMM will only refer to the NRA being revised as of the effective date; the SMM will not include the actual NRA listed in the checklist.) All such definitions of normal retirement age need to be reviewed in light of this Notice.

Section 1.411(d)-3 Regulations Implementing Heinz. In Central Laborers' Pension Fund v. Heinz ("Heinz"), the Supreme Court held in 2004 that the implementation of a suspension of benefits rule in a defined benefit plan was an impermissible reduction in protected benefits even though implementation of such a rule was allowed under other applicable law. Under the new regulations, a plan amendment may not decrease a participant's accrued benefits, or otherwise place greater restrictions or conditions on a participant's rights to section 411(d)(6) protected benefits, even if the amendment merely adds a restriction or condition that is permitted under the vesting rules. Under the new section 1.411(d)-3 regulations, the IRS extended the Heinz decision to defined contribution plans as well. Now, the prohibition on amendments that add a restriction or condition on vesting applies equally to defined contribution and defined benefit plans.

The IRS's inclusion of the new section 1.411(d)-3 regulations came as a surprise to most practitioners, especially since nearly all plans contain a general prohibition on section 411(d)(6) cutbacks.

Final Regulations under Section 415. The final regulations under section 415 generally apply to limitation years beginning on or after July 1, 2007. It is not entirely clear how the changes to the definition of section 415 compensation (e.g., inclusion/exclusion of post severance compensation) may affect the definition of compensation for benefit allocation and accrual purposes. For example, in a standardized plan a participant earns a benefit after only 500 hours of service (For a June 30 year end this would occur as early as September 30, 2007). If the plan is amended after the participant earns this service and the definition of compensation is amended in such a way that reduces the compensation taken into account for allocation purposes, there will be an impermissible section 411(d)(6) cutback. Therefore, in order to avoid any possible section 411(d)(6) anti-cutback issues it is advisable to amend a plan before any participants earn a benefit under the new definition of section 415 compensation. Please note that the interplay of the plan's year end and limitation year may require an amendment for the first plan year ending on or after July 1, 2007.

Other Amendments

Excess Deferral Gap Period Income. Even though the final regulations under section 402(g) regarding gap period income went into effect in 2007, the IRS did not include this item on the 2007 List of Amendments because of an impending technical correction. However, because the technical correction would not be effective until 2008, a strict reading of the IRS revenue procedures would indicate that an amendment is required.

Mandatory Rollovers - Roth. The final Roth regulations provide that eligible rollover distributions from a participant's Roth Elective Deferral Account are separately taken into account in determining whether the total amount of the Participant's Account balances under the Plan exceeds $1,000 for purposes of mandatory distributions from the Plan. The model amendment previously provided by IRS stated that the participant's Roth Elective Deferral Account was combined when determining the mandatory cash out amount.

Defined Benefit Plan Lump Sums under PPA. PPA amended the definitions of "Applicable Mortality Table" and "Applicable Interest Rate" for purposes of computing lump sum distributions under section 417 effective for plan years beginning on or after January 1, 2008. However, the IRS has not yet indicated how or whether the general PPA exemption from the section 411(d)(6) anti-cutback rules will apply to this provision. Therefore, a plan amendment should be considered before 2008 to avoid the possibility of offering the "better of" calculations using the old and new table/rates.

Defined Contribution Required Amendments:

1. Post Severance/Post Year End Compensation

   Section A of the Checklist under "Compensation" now has two additional questions for the new 415 regulations that revise the definition of Compensation for allocation purposes and 415 Compensation. Please contact us if a plan offers voluntary contributions ONLY - special language may be required.

   "Include Post Severance Compensation in definition of Compensation for allocation purposes." (A 401(k) plan has additional questions relating application of the new definition to various sources. Note, in a 401(k)/403(b) plan, the Non Elective Source will be selectable even if there are no profit sharing contributions because of other non elective sources such as QNECs and/or top heavy minimum contributions). Default answer is "No". (Note: Please review the amendment as certain post termination amounts must be included in compensation.)

   "Determine compensation for allocation purposes using Post Year End Compensation." Default answer is "No".

2. Normal Retirement Age (Money Purchase and Target Plans Only).

   Section E of the Checklist under "Normal Retirement" now has an additional question for the new normal retirement age regulations. Please note that most plans will answer "No" to this question.

   "Normal Retirement Age. It is necessary to amend the Plan to revise the definition of Normal Retirement Age." Default answer is "No".

Defined Contribution Summary of Material Modifications

1. Post Severance Compensation

   See item 1 under Defined Contribution Required Amendments.

2. PPA Vesting Schedule.

   PPA requires that a "Top Heavy" vesting schedule apply to all employer contribution accounts effective in 2007. The defined contribution checklists were revised to provide for the schedules in late 2006. The revised schedule will appear in the SMM only if the vesting schedule is different from the pre 2007 schedule or if a miscellaneous schedule is selected.

3. Hardship Distributions for Beneficiaries (Not for Money Purchase or Target).

   Section F of the Checklist under "Hardship" now has an additional question for the new PPA rules for hardship distributions. Plans using the "safe harbor" criteria may allow hardship distributions to be made for medical, tuition, and funeral expenses of a primary beneficiary in addition to the participant's dependents.

   "Expand the Hardship criteria to include the beneficiary of the Participant." Default answer is "Yes".

4. Qualified Reservist Distributions. (401(k) Plans Only).

   Section F of the Checklist under "Other Withdrawals" now has an additional question for the new PPA rules for qualified reservist distributions. The rules generally apply to a military reservist called to active duty for a period in excess of 179 days or for an indefinite period.

   "Permit Qualified Reservist Distributions." Default answer is "No".

5. Inservice Distributions after age 62. (Money Purchase and Target Only).

   Section F of the Checklist under "Other Withdrawals" now has an additional question for the new PPA rules for in service withdrawals after age 62.

   "The Plan permits a distribution to be made to a Participant who has attained age 62 and who has not separated from employment." Default answer is "No".

6. Normal Retirement Age. (Money Purchase and Target Only)

   See item 2 under Defined Contribution Required Amendments.

7. Publicly Traded Securities.

   Section F of the Checklist under "Other Withdrawals" in non-standardized and volume submitter documents now has an additional question for the new PPA rules for qualifying employer securities of publicly traded employers.

   "If plan invests in qualifying employer securities, are the securities publicly-traded and subject to the diversification requirements." Default answer is "No".

Defined Benefit Required Amendments:

1. Post Severance/Post Year End Compensation.

   Section A of the Checklist under "Compensation" now has two additional questions for the new 415 regulations that revise the definition of Compensation for purposes of benefit accrual and 415 Compensation.

   "Include Post Severance Compensation in definition of Compensation for purposes of benefit accrual." Default answer is "No". (Note: Please review the amendment as certain post termination amounts must be included in compensation.)

   "Determine compensation for purposes of benefit accrual using Post Year End Compensation." Default answer is "No".

2. PFEA.

   Section C of the Checklist under "Section 415 Limits" has an additional question for the special PFEA transition rule.

   "The Plan uses the special PFEA transition rule for distributions received before January 1, 2005." Default answer is "Yes"

3. Normal Retirement Age.

   Section E of the Checklist under "Normal Retirement" now has an additional question for the new normal retirement age regulations. Please note that most plans will answer "No" to this question.

   "Normal Retirement Age. It is necessary to amend the Plan to revise the definition of Normal Retirement Age." Default answer is "No".

Defined Benefit Summary of Material Modifications

1. Post Severance Compensation

   See item 1 under Defined Benefit Required Amendments.

2. Inservice Distributions after age 62.

   Section F of the Checklist under "Other Withdrawals" now has an additional question for the new PPA rules for in service withdrawals after age 62.

   "The Plan permits a distribution to be made to a Participant who has attained age 62 and who has not separated from employment." Default answer is "No".

3. Normal Retirement Age.

   See item 3 under Defined Benefit Required Amendments.

Please contact us at support@ftwilliam.com or (800) 596-0714 if you have any questions regarding this technical update.