PLANSPONSOR - February/March 2018 - 23

2006
Pension Protection
Act of 2006
THE Pension Protection Act of 2006
(PPA) is enacted to protect participants'
retirement accounts and to hold companies
with underfunded pension accounts
accountable. While the name of the
act might imply that only employees
receiving a pension benefit plan will be
affected, much of the legislation focuses
on defined contribution and 401(k) plans.
The PPA sets the stage for wide adoption
of automatic features in DC plans,
by, for example, pre-empting state withholding
laws, creating safe harbors for
automatic enrollment and escalation plan
designs-as well as new default investment
regulations-and making Roth
contributions permanently available for
DC plan participants.
The 2017 PLANSPONSOR DC Survey
will point up the degree of the PPA's influence,
finding, for example, that 42.7% of
plan sponsors then, overall, offer autoenrollment
in their DC plans, and 35.4%
of those, overall, additionally offer autoescalation
of employee deferrals.
Also a decade after the bill's passage,
Drew Carrington, leader of Franklin
Templeton Investments' U.S. large market
institutional defined contribution business,
will tell PLANSPONSOR, what
makes the PPA an even more powerful
driver of change is the exploding use of
participant data and technology in retirement
planning. Recordkeeping and investment
firms alike are making big efforts to
distinguish themselves from the competition
through technology partnerships and
the rollout of proprietary planning tools.
" Not only can a new hire or existing
employee be swept into an age-appropriate
and risk-balanced portfolio that
will answer challenging investment
questions for them, but recordkeepers
can increasingly access and leverage
external data pertaining to the individual's
unique retirement outlook, allowing
for more holistic investment decisions, "
Carrington will say.
2007
The Remaking of 403(b) Plans
ON July 26, the Internal Revenue Service
publishes final regulations under Section
403(b) of the IRC. Many observers see this
as a move to make the majority of 403(b)
plans more closely resemble 401(k) plans.
It had become clear that the IRS had to
regulate 403(b) plans, after examinations
found that the plans-typically composed
of individual annuity contracts vendors
offered directly to participants-often
failed to adhere to statutory limits such as
for contributions and loans taken.
One major change the final rules
bring to the 403(b) industry is the introduction
of " information sharing " agreements,
which a plan's multiple vendors must sign.
But perhaps the most significant
change is that all 403(b) plans now must
have a written plan document in place
that specifies what the plan includes and
that the plan is now to be treated as one
entity instead of the individual contractual
components it had often been viewed as.
The regulations allow for a plan document
that is a compilation of vendor contracts
and other plan communications.
A " universal availability " rule that
eliminated the need for average deferral
percentage (ADP) testing for 403(b)
plans had long applied to all such plans
with elective deferrals, including plans of
governmental employers but not church
plans. The final regulations, however,
repeal the nondiscrimination safe harbors
of IRS Notice 89-23 and generally require
nondiscrimination testing on all employer
contributions and after-tax employee
contributions. Other new rules apply to
special contributions allowed only for
403(b) plans, transfers between plans and
contract exchanges within plans.
As plan sponsors get into compliance
with 403(b) regulations, many will find it
easier to pare down to one vendor and to a
reasonable number of investment options.
Many 403(b) plans will eventually come to
look and operate like 401(k)s.
Governmental employers and church
entities-unless they elect to have ERISA
provisions apply to their plan-are exempt
from the final rule. The rest will need to
satisfy the " limited employer involvement "
criteria of the DOL non-ERISA safe harbor
regulations. The final regulations make
this harder to satisfy, so some non-ERISA
plans find themselves now ERISA plans.
PLANSPONSOR.com February-March 2018 23
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PLANSPONSOR - February/March 2018

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