Pension Protection Act of 2006 (PPA)

1. Pension Protection Act of 2006(PPA) Overview: Sweeping Changes for Defined Benefit Pension Plans Presented by David S. Boomershine, Senior Actuary Boomershine Consulting Group, LLC

2. Agenda • Pension Protection Act • Funding Rules • Other • Financial Accounting Standards 158

3. PPA Funding Rules Funding Target Achievement Percentage (FTAP) Asset Valuation Revised Interest Rate Basis Mortality Tables Minimum Contributions Credit Balance options Maximum Deductible Contributions

4. PPA Funding Rules Funding Target Achievement Percentage (FTAP) • Funding Target: 100% of Present Value of Accrued Benefits • Transition: 92%/2008 94%/2009 96%/2010 100%/2011 • If no Deficit Reduction Contribution in 2007 • Use revised required assumption basis Asset Valuation Options allowed: • Fair Market Value (FMV) • Smoothed investment returns – over 24 months • Smoothed value must be between 90% - 110% of FMV

5. PPA Funding Rules Revised Interest Rate Basis • Yield curve: 3 segments • 3 segments: 5 years / 15 years / 20+ years • Based on 24-month average of quality corporate bonds • Alternative: full yield curve • Transition: 2008 – 2010 Mortality Tables • 2007: Based on RP 2000 table – projected • 2008: Prescribed by Secretary of the Treasury • Actual plan-specific experience (if large plan) • Also use projected trends

6. PPA Funding Rules Minimum Required Contributions • Adjusted Assets – reduced by Credit Balance • Minimum Required Contribution (MRC): Target Normal Cost + Shortfall Amortization Charge • Shortfall Amortization Charge • Shortfall: 100% of Funding Target* - Adjusted Asset Value (i.e. Unfunded Actuarial Liability) • Amortize over 7 year period *Note: Transition targets • MRC may be reduced by Credit Balance, if FTAP > 80% • “At Risk” Plans – FTAP < 80% (transition rules apply): Accelerated funding requirements

7. PPA Funding Rules Credit Balances (CB) • 2 Types: • Carryover Balance (COB) – old • Prefunding Balance (PFB) – new • 3 Primary Approaches: • Maintain CB, keep future funding flexibility • Use CB, towards Minimum Required Contributions • “Burn” CB, to increase Funded Ratio

8. PPA Funding Rules Maximum Deductible Contributions • For 2008: Funding Target (FT) - Assets + Normal Cost + Cushion = 50% of FT, plus “allowance” • Concern: Overfunded Plans?

9. Other PPA Issues Benefit Limitations Benefit Distributions PBGC Premiums Disclosure Requirements Hybrid Plans Phased Retirement Combination DB/K Plans Governmental DB Plans Multi Employer DB Plans Non-qualified Deferred Compensation Plans Overfunded Plans/Section 420 Transfers

10. Other PPA Issues Benefit Limitations • Funded less than 80% • No benefit increases • Partial restriction on lump sums • Funded less than 60% • Frozen benefit accruals • No lump sums • No shutdown benefits • Credit Balances must be “burned” to avoid lump sum restrictions - ? • No Credit Balance offset required for these determinations - ?

11. Other PPA Issues Benefit Distributions For Lump Sums: • For 2008: Revised interest rate basis: 3 segments • Phased in 20%/year – by 2012 • Mortality table • Minimum lump sums Also, must offer 75% Qualified Optional Survivor Annuity PBGC Premiums • For 2007: Exemption for Variable Rate Premium due to meeting Full Funding Limitation has been eliminated • Variable Rate Premium applies if less than 100% funded • Interest rate revised • Use Market Value of Assets

12. Other PPA Issues Disclosure Requirements • Pension Benefit Statements – Options: • At least once every 3 years: due 2009 plan year • Annual notice that statements are available upon request – due 2007 • 2008 Funding Notice: Replaces Summary Annual Report • Target Attainment Percentage (Funded Status) • Assets • Liabilities • Participant counts • Plan’s funding policy • Asset Allocation • Amendments and material events • Due 120 days after end of Plan Year • PBGC Filing required if under 80% funded – with Participant Notice

13. Other PPA Issues Hybrid Plans (Cash Balance) • “New Age” Discrimination Testing • Comparison based on: • Annuity • Account Balance • % of pay • Some past hybrid design issues resolved prospectively (Whipsaw) • Interest credit – not greater than market rate of return • Vesting: 3 years of service • More viable plan design option now?

14. Other PPA Issues • Phased Retirement • In-service distributions allowed at age 62 • DB/K Plans: In 2010 • Single Plan may provide for DB and 401(k) benefits – if under 501 participants

15. Additional Note: Financial Accounting Standards No. 158 • FASB 2-phase project: revamp standards • FAS 158 – Phase 1: • Asset/liability on financial balance sheet now based on Projected Benefit Obligation (PBO) vs. Accumulated Benefit Obligation (ABO) • Impact: dramatically increases liabilities on balance sheets • No impact on annual Net Expense • Generally effective for fiscal years ending after 12/15/2006 • Measurement Date must now be last day of fiscal year – effective 12/15/2008

16. ? Questions?