The PPA made too many changes affecting 403(b) and 457 to cover in one post. This blog will, instead, cover them essentially one at a time, to allow for context and comments. This is the first such post.
The most important thing the Pension Protection Act did was to make permanent the changes in the law passed by EGTRRA. Just as a reminder, these are (as described in the PPA Blue Book and as having relevance to 403(b) or 457):
Individual retirement arrangements (“IRAs”)
• Increases in the IRA contribution limits, including the ability to make catch-up contributions (secs. 219, 408, and 408A of the Code and sec. 601 of EGTRRA); and
• Rules relating to deemed IRAs under employer plans (sec. 408(q) of the Code and sec. 602 of EGTRRA).
Expanding coverage
• Increases in the limits on contributions, benefits, and compensation under qualified retirement plans, tax-sheltered annuities, and eligible deferred compensation plans (secs. 401(a)(17), 402(g), 408(p), 414(v), 415, and 457 of the Code and sec. 611 of EGTRRA);
• Modification of the top-heavy rules (sec. 416 of the Code and sec. 613 of EGTRRA);
• Repeal of coordination requirements for deferred compensation plans of state and local governments and tax-exempt organizations (sec. 457 of the Code and sec. 615of EGTRRA);
• Option to treat elective deferrals as after-tax Roth contributions (sec. 402A of the Code and sec. 617 of EGTRRA);
and
• Certain nonresident aliens excluded in applying minimum coverage requirements (secs. 410(b)(3) and 861(a)(3) of the Code).
Enhancing fairness
• Catch-up contributions for individuals age 50 and older (sec. 414 of the Code and sec. 631 of EGTRRA);
• Equitable treatment for contributions of employees to defined contribution plans (secs. 403(b), 415, and 457 of the Code and sec. 632 of EGTRRA);
• Faster vesting of employer matching contributions (sec. 411 of the Code and sec. 633 of EGTRRA);
• Modifications to minimum distribution rules (sec. 401(a)(9) of the Code and sec. 634 of EGTRRA);
• Clarification of tax treatment of division of section 457 plan benefits upon divorce (secs. 414(p) and 457 of the Code and sec. 635 of EGTRRA);
• Provisions relating to hardship withdrawals (secs. 401(k) and 402 of the Code and sec. 636 of EGTRRA); and
Increasing portability
• Rollovers of retirement plan and IRA distributions (secs. 401, 402, 403(b), 408, 457, and 3405 of the Code and secs. 641-644 of EGTRRA);
• Treatment of forms of distribution (sec. 411(d)(6) of the Code and sec. 645 of EGTRRA);
• Rationalization of restrictions on distributions (secs. 401(k), 403(b), and 457 of the Code and sec. 646 of EGTRRA):
• Purchase of service credit under governmental pension plans (secs. 403(b) and 457 of the Code and sec. 647 of EGTRRA):
• Employers may disregard rollovers for purposes of cash-out rules (sec. 411(a)(11) of the Code and sec. 648 of EGTRRA); and
• Minimum distribution and inclusion requirements for section 457 plans (sec. 457 of the Code and sec. 649 of EGTRRA).
Strengthening pension security and enforcement
• Automatic rollovers of certain mandatory distributions (secs. 401(a)(31) and 402(f)(1) of the Code and sec. 657 of EGTRRA);
Reducing regulatory burdens
• Repeal transition rule relating to certain highly compensated employees (sec. 663 of EGTRRA);
• Treatment of employees of tax-exempt entities for purposes of nondiscrimination rules (secs. 410, 401(k), and 401(m) of the Code and sec. 664 of EGTRRA);
• Treatment of employer-provided retirement advice (sec. 132 of the Code and sec. 665 of EGTRRA).
Lest we forget, the failure to repeal these changes would have set back progress in 403(b) service markets dramatically. The effect of the changes was to make 403(b) more like 401(k), but with some nice special rules. Before, simple tasks like determining maximum contributions, was a nightmare and very few providers could handle them, which caused most TPAs to avoid 403(b) like the plague. Now, in essence, you can run a 403(b) like a 401(k), and only look at the differences if there is a problem (e.g., ADP test, annual limits, 402(g) deferral limits). This is opening up new providers to 403(b) employers and should serve to increase quality and service levels while decreasing price for all 403(b) plans or arrangements. At Benefit Plan Solutions, we are seeing a steady increase in activity helping 401(k) providers move into a new market with very soft competition.
