Critical Issues for Defined Benefit Plan Sponsors

(3:00 Panel)

Brigen L. Winters

Groom Law Group

October 19, 2006

2

Credit Balances

Carryover and pre-funding balances permitted May offset MRCs if 80% or more funded for preceding year

(with pre-funding balance subtracted from assets) Subtract all credit balances from assets for:

Determining “shortfall” Benefit restrictions At-risk rules 4010 filings and certain disclosure rules Section 420 transfer rules

3

Credit Balances

Waiver of credit balances Sponsor may voluntarily waive Required waiver, if necessary, to avoid certain

benefit restrictions if collectively bargained plan Note, benefit restrictions, e.g., required freeze,

may breach CBA Required waiver, if necessary, to avoid lump sum

restrictions, applicable to all plans with lump sums.

4

Transition to New Funding Rules

Phase-in of funding target 2008 – 92% 2009 – 94% 2010 – 96% 2011 – 100%

Key issues regarding phase-in Not subject to DRC in 2007 Meet applicable threshold each year Subtraction of credit balances generally not required

5

Transition to New Funding Rules

If qualify for and funded to applicable threshold: Not required to subtract credit balances in determining “shortfall” Avoid benefit restrictions (Note, at-risk rules could still apply)

If do not qualify for or not funded to applicable threshold: 100 funding target immediately Reduction of assets by credit balances in determining

shortfall and whether benefit restrictions apply

6

Transition to New Funding Rules

Importance of 2007 funding status Whether or not DRC affects eligibility for phase-in Look-back rules for at-risk status for 2008 Prior year “presumption rule” for benefit

restrictions for 2008 Treasury to prescribe methods of estimation for

2007 May need credit balance waiver rules for 2007