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CCH® PENSION AND BENEFITS — 9/29/06

IRS provides alternative funding schedule election for airline DB plans

The IRS has announced procedures that commercial airlines and airline caterers can use for electing the alternative funding schedule for contributions to their defined benefit plans described in section 402(a)(1) of the Pension Protection Act of 2006 (PPA, P.L. 109-280).

The election should specify whether the schedule will first be effective in a plan year beginning in 2006 or a plan year beginning in 2007. An election that first applies the alternative funding schedule for a plan year beginning in 2006 must be made no later than December 31, 2006. An election that first applies the alternative funding schedule for a plan year beginning in 2007 must be made no later than December 31, 2007. The plan sponsor is permitted to specify a new plan year as part of the alternate funding schedule election, and the change of plan year does not require IRS approval.

If the election is made, the plan will not be considered to have an accumulated funding deficiency under ERISA §302 and Code Sec. 412. However, the contributions for the plan year must meet the requirements of section 402(e) of the PPA, which generally requires that a plan's minimum required contribution be sufficient to amortize the plan's unfunded liability over 17 plan years beginning with the first applicable plan year.

Other requirements

The election must state whether the employer is a commercial passenger airline or an entity whose principal business is providing catering services to an airline, the name and employer identification number of the plan sponsor, the name and plan number of the plan, the first year for which the alternative funding schedule provisions are to apply and (if the plan year is to be changed) the old and new plan years.

For more information on this and related topics, consult the CCH Pension Plan Guide.

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