<nobr>Jul 9, 2008</nobr>

House Approves Pension Protection Act Technical Corrections with Asset Smoothing Fix

The House of Representatives on July 9 approved under "suspension of the rules" H.R. 6382, legislation to make technical corrections related to the Pension Protection Act of 2006 (PPA), which includes a clarification to the asset smoothing rules. House Ways and Means Committee Chairman Charles Rangel (D-NY) and Education and Labor Committee Chairman George Miller (D-CA) on June 26 introduced H.R. 6382.

The Pension Protection Technical Corrections Act of 2008 also includes corrections regarding:

• the target normal cost of benefits;


• specified implementation and effective dates for certain requirements;


• age-related rules in accrued benefit requirements for applicable defined benefit plans; and


• inapplicability in certain cases of the limitation on income deductions (for tax purposes) for employer contributions to one or more defined contribution plans.

Asset Smoothing Clarification

The asset smoothing clarification is the same provision the Senate approved (S. 1974) in December 2007. The provision provides that, in determining the value of a plan's assets under the averaging method, such averaging will be adjusted for expected earnings as specified by the Treasury Secretary. Under prior law, companies were able to recognize unexpected pension plan asset gains and losses over four years, while the PPA reduced that smoothing period to two years. The provision would overrule proposed regulations by Treasury that would impose a pure arithmetic average, which would force companies to use the fair market value of assets for funding purposes instead of a smoothed value that recognizes unexpected gains and losses over two years.

Final Passage of PPA Technical Corrections Appears to be Imminent

Passage of H.R. 6382 is a significant step, resulting from heavy lobbying by ERIC and other employer groups to make technical corrections to the PPA, particularly to clarify smoothing and averaging. The legislation has been held up for some time over a dispute relating to Congressional intent regarding the definition and scope of "averaging" and "smoothing." While the House bill contains additional provisions, including changes concerning the calculation of interest credits in governmental hybrid plans and the treatment of rollover contributions from airline carrier bankruptcy, final passage of the PPA technical corrections legislation appears to be imminent.

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H.R. 6382

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