New rules restricting benefits in underfunded pension plans.

New proposed regs from the U.S. Treasury provide guidance on new rules enacted as part of the Pension Protection Act of 2006 (PPA) that restrict benefits in underfunded pension plans.

The restrictions on benefits will apply next year to underfunded pension plans under IRC Sec. 436.

The proposed regs include a number of transition rules, as well as guidance under IRC Sec. 430(f) regarding the treatment of an employer's contributions in excess of the minimum required contribution for a plan year that results in a credit or funding balance. The PPA generally requires such a balance to be excluded in determining a plan's funded percentage for purposes of applying the limitations of Sec. 436.

The proposed regulations will apply to plan years beginning after Dec. 31, 2007, and can be relied on for qualification purposes pending the final regulations.

A copy of the proposed regs is available at www.ustreas.gov/press/releases/hp542.htm.