Compliance December 1, 2006

DoL Provides Multiemployer Plan Election Model Notice

The Department of Labor (DoL) has announced that a model notice, which may be used by employee benefit plans electing to be treated as a multiemployer plan under the Employee Retirement Income Security Act (ERISA), will be published in the Federal Register for December 1, 2006.
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The Pension Protection Act of 2006 (PPA) amended ERISA to permit certain plans that had elected to be single-employer plans to revoke that election and to allow other plans to elect to be treated as multiemployer plans, provided that notice of the election is furnished to participants and other interested parties no later than 30 days before the election, the DoL said in its announcement. Elections must be made with the Pension Benefit Guaranty Corporation within one year after the enactment of the PPA.

Among other things, the notice must describe the principal differences between ERISA’s guarantee programs and benefit restrictions for single-employer and multiemployer plans. The DoL said its model notice may be used by plan administrators to fulfill their notice obligations when making an election.

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A copy of the model notice will also be available through the DOL’s Employee Benefits Security Administration Web site at www.dol.gov/ebsa.

Compliance December 1, 2006

IRS Issues Guidance on Employer Stock Account Diversification

The Treasury Department and IRS have issued Notice 2006-107 providing transition guidance on the provision of the Pension Protection Act of 2006 (PPA) relating to diversification rights of plan participants and beneficiaries who have accounts held in publicly traded employer securities.
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The notice, which is not required before January 1, 2007, defines what is considered a publicly traded employer security as well as the individuals who have diversification rights. In addition, the notice provides rules for investments offered for diversification.

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Permitted, as well as non-permitted, restrictions and conditions of divesture are spelled out for plan administrators and sets forth transition rules for existing limitations and grandfathered investments.

The PPA requires that a defined contribution plan that holds publicly traded company stock permit participants to diversify the stock accounts after three years of service. The plans must give participants a notice of their diversification rights as well as educational material about the importance of diversification.

The guidance includes information provided by the Department of Labor concerning the date by which participants and beneficiaries must be notified of their new rights. There is also a model notice that can be used to satisfy the notification requirement.

The notice is here.

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