Overview. On August 17, President Bush signed into law the Pension Protection Act (Act) of 2006,1 the first comprehensive pension legislation in more than 30 years. The Act is massive, is designed to strengthen traditional pension plans that cover approximately 44 million Americans (primarily in the manufacturing and other non-service industries) and will certainly make retirement planning for businesses and individuals more complex.2 The Act also creates new rules governing charitable donations for businesses and individuals, as well as the operation of charities. In addition, the Act includes numerous miscellaneous provisions and technical corrections

McEowen, Roger A

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Overview. On August 17, President Bush signed into law the Pension Protection Act (Act) of 2006,1 the first comprehensive pension legislation in more than 30 years. The Act is massive, is designed to strengthen traditional pension plans that cover approximately 44 million Americans (primarily in the manufacturing and other non-service industries) and will certainly make retirement planning for businesses and individuals more complex.2 The Act also creates new rules governing charitable donations for businesses and individuals, as well as the operation of charities. In addition, the Act includes numerous miscellaneous provisions and technical corrections.</p

McEowen, Roger

Digital Repository @ Iowa State University (ISU)

Agricultural Law PressPublisher/EditorRobert P. Achenbach, Jr.Contributing EditorDr. Neil E. Harl, Esq.*   *   *   *Issue ContentsAnimals Bull 131 Horses 131Bankruptcy Federal taxation  Administrative expenses 132  Refunds 132  Tax liens 132Federal Agricultural Programs Farm labor 132	 Genetically-modified	organisms	132 PACA 132 Warehouses 133Federal Estate and Gift Taxation Charitable deduction 133 IRA 133 Power of appointment 133 Valuation 133 Federal Income Taxation Alternative minimum tax 134 Audits 134 Capital expenses 134 Court awards and settlements 134 Disaster losses 134	 Employee	benefits	134 Hybrid vehicle tax credit 134 IRA 134 Installment reporting 134 Interest 134 Like-kind exchanges 135 Returns 135 Safe harbor interest rates  September 2006 135 S corporations  Number of shareholders 135 Sale of residence 135 Theft losses 135 Wages 135 Travel expenses 135Patents	 Genetically-modified	organisms 135Product Liability Silo 136 Stray voltage 136Secured Transactions Landlord’s lien 136Agricultural    Law DigestVolume 17, No. 17 September 1, 2006                    ISSN 1051-2780Agricultural Law Digest is published by the Agricultural Law Press, P.O. Box 50703, Eugene, OR 97405 (ph 541-513-5594), bimonthly except June and December. Annual subscription $110 ($90 by e-mail).  Copyright 2006 by  Robert P. Achenbach, Jr. and Neil E. Harl.  No part of this newsletter may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or by any information storage or retrieval system, without prior permission in writing from the publisher.  http://www.agrilawpress.com  Printed  on recycled paper.129Pension Protection Act of 2006-by Roger A. McEowen* Overview. On August 17, President Bush signed into law the Pension Protection Act (Act) of 2006,1	the	first	comprehensive	pension	legislation	in	more	than	30	years.		The	Act	is massive, is designed to strengthen traditional pension plans that cover approximately 44 million Americans (primarily in the manufacturing and other non-service industries) and will certainly make retirement planning for businesses and individuals more complex.2 The Act also creates new rules governing charitable donations for businesses and individuals, as well as the operation of charities.  In addition, the Act includes numerous miscellaneous provisions and technical corrections. Pension Provisions. The Act implements a higher limit on the amount of employer contributions that are deductible while generally requiring higher funding levels in order to qualify plan tax status.  Under prior law, an employer could deduct plan contributions up to 100 percent of the plan’s current liability, with additional contributions subject to a 10 percent excise tax.  Under the Act, for plans beginning in 2006 and 2007, the maximum deductible amount is 150 percent of current plan liability.3 Beginning in 2008, deductible contributions may be made up to an amount equal to the excess of the funding target, normal costs, and a “cushion account” equal to 50 percent of target liability plus accountability for projected compensation increases over the value of the plan assets.4 Plans with 100 or fewer participants get	a	break	on	computing	benefit	increases	for	highly	compensated	employees.5 The deduction limit for multiemployer plans increases to 140 percent of current liability.6 The Act requires that most pension plans must become fully funded over a seven-year period.  The transition from current 90 percent funding to 100 percent full funding is gradual. But, none of the funding rules apply to plan years starting before 2008.  After 2007, transition rules apply.  Plans that are not fully funded at the start of 2008 may work on meeting interim targets of 92 percent in 2008, 94 percent in 2009, and 96 percent in 2010.7 Plans in existence in 2007 that have a pre-funding balance may maintain a funding standard carryover balance until reaching zero, and new plans established after 2007 are ineligible for most of the transition rules.8 “At-risk” plans are subject to accelerated contributions.9 Companies that are below 80 percent funded cannot use credit balances for funding or making promises to provide enhanced or	new	benefits.		Plans	that	are	less	than	60	percent	funded	will	be	restricted	from	offering	any	lump-sum	benefit	payments	and	new	accruals	are	frozen	in	those	plans.		 Measuring	liabilities	is	critical	to	determining	full	funding	under	the	Act.		The	Act	specifies	that the interest rate to be used for 2006 and 2007 can be based on investment-grade corporate bonds.10 In 2008, the interest rate will be based on a three-segmented yield curve.11 _______________________________________________________________________ *  Leonard Dolezal Professor of Agricultural Law, Iowa State University, Ames, Iowa. Member of the Nebraska and Kansas Bars; honorary member of the Iowa Bar.after	2005	for	IRAs	(not	adjusted	for	inflation),	$2,500	for	SIMPLE	plans,	$5,000	for	401(k)	plans	(adjusted	for	inflation	in $500 increments));29•  Higher deductible amounts for employer contributions to employee	 retirement	 plans	 (inflation-adjusted	 to	 $220,000	in 2006);30•  Roth 401(k)s and 403(b)s;31•  Start-up credit for new small employer-sponsored plans;32•		Defined	benefit	plan	limits;33•  Saver’s credit (with gross income amounts used to compute the amount	of	the	credit	indexed	for	inflation	beginning	in	2007;	however	the	credit	itself	is	not	adjusted	for	inflation);34•  I.R.C. §529 plans. 35 Charitable Donation Provisions.  Effective after August 17, 2006, the Act eliminates a tax deduction for used clothing and household items unless the items are in “good” condition.36 The Act also requires that cash donations, of any amount, must be substantiated either by a cancelled check, bank record or written substantiation from the charity indicating the amount of the contribution, the date the contribution was made and the name of the charity.37 The Act allows taxpayers to make tax-free distributions from IRAs (both traditional and Roth) for charitable purposes through 2007, with a maximum annual cap of $100,000.38 The Act also extends through 2007 the food donation rules contained in the Katrina Relief Act of 2005 for partnerships, S corporations and other business entities.39 Likewise, the Act extends through 2007 the enhanced deduction for books donated to public schools by C corporations.40 For 2006 and 2007 only, the Act raises the deduction limits for qualified	conservation	easements	from	30	percent	to	50	percent	of	adjusted gross income.41	For	a	donor	that	is	a	“qualified	farmer	or	rancher”42 the deduction limit is 100 percent provided the donated property remains available for agricultural production.43 Effective for contributions through 2007, the reduction in shareholder stock basis in an S corporation due to a charitable contribution by the corporation equals the shareholder’s pro rata share of the adjusted basis of the contributed property.44 The Act also increases federal oversight of charitable organizations in certain areas, and includes numerous miscellaneous provisions	 applicable	 to	 charities,	modifies	 the	 thresholds	 for	substantial and gross valuation misstatements, and imposes new penalties on appraisers who provide bogus appraisals.45Footnotes 1  H.R. 4, P.L. 109-280. 2 The Labor Department estimates that approximately 30,000 pension plans are presently underfunded by $450 billion. 3 Act, Sec. 801(d), amending I.R.C. § 404(a)(1)(D), clause (i). 4 Act, Sec. 801(a), amending I.R.C. § 404. 5 Act, Sec. 801(a)(4). 6 Act, Sec. 802(a), amending I.R.C. § 404(a)(1)(D), effective for years beginning after 2007. 7 Act, Sec. 112, amending I.R.C. § 430. 8 Id.  However, Delta and Northwest airlines are allowed 17 years to fully fund their plans.  Other airlines get 10 years to fully fund plans.  Act, Sec. 402, effective for plan years after Aug. 17,  Effective for plan years beginning after 2009, the Act provides for a new kind of hybrid pension plan for employers with 500 or fewer employees.12 The new “DB/K plan” combines a traditional defined	benefit	pension	plan	with	a	401(k)	savings	plan.13 The plan will provide a lower employer-paid guaranteed lifetime monthly retirement	benefit	that	could	be	supplemented	by	voluntary	tax	deferred contributions by employees.14 The minimum pension benefit,	payable	to	employees	who	work	three	or	more	years	for	the employer, will be equal to the greater of one percent of average pay during the last three years of work multiplied by the number of years worked under the plan, up to 20 years, or 20 percent of final	average	pay.15 The 401(k) component of the plan requires the employer to match at least 50 percent of an employee’s contributions up to 4 percent of the employee’s salary.16 The Act also provides liability protection for employers against lawsuits based on age-discrimination for converting a pension plan to a hybrid “cash balance” plan.17 Retirement Savings Provisions.  Under the Act, 401(k), IRA and similar providers may offer personalized investment advice to account holders, but cannot advise employers about which funds and investments to include in their plans.18 The Act allows taxpayers to deposit their tax refunds into an	IRA,	and	specifies	that	the	Treasury	Secretary	is	to	issue	an	appropriate Form to report such deposits for tax years beginning after 2006.19 In addition, military reservists called to active duty after September 11, 2001, and before December 31, 2007, for at least 180 days, may make penalty-free early distributions from their IRAs, 401(k)s and similar arrangements.20 Such withdrawals may be re-contributed within two years after the end of active duty to avoid income tax on the distributions.21 Under the Act, the Treasury is to issue rules within 180 days of enactment that allow 401(k) plan withdrawals for hardships and	unforeseen	financial	emergencies	with	respect	to	any	person	who	is	listed	as	a	beneficiary	under	the	plan.22 Under prior law, a taxpayer could roll over a deceased spouse’s interest	 in	a	qualified	 retirement	plan,	government	plan	or	 tax	sheltered annuity into an IRA with distributions only taxed as normal distributions are taken.  The Act extends this treatment to	non-spouse	beneficiaries.23 The Act allows direct rollovers (rather than two-step rollovers) from a qualified retirement plan, tax-sheltered annuity or governmental plan directly to a Roth IRA and will treat it as a Roth	conversion	if	all	other	conversion	qualifications	are	met.24 Permanency of EGTRRA Provisions.  The Act repeals the sunset provisions of EGTRRA applicable to retirement savings. Provisions made permanent include:•  Ceiling on IRA contributions ($4,000 in 2006; $5,000 in 2008; inflation	adjusted	thereafter);25•		Higher	dollar	limits	on	defined	contribution	plans	($44,000	in 2006); elective deferrals (including $15,000 in 2006 for 401(k) plan deferrals);26 457 plan deferrals ($15,000 in 2006); SIMPLE plan contributions ($10,000 in 2006);27•		Increases	in	the	annual	benefit	limit	under	a	defined	benefit	plan ($175,000 for 2006);28•  Permanent catch-up contributions for older workers ($1,000 130 Agricultural Law Digest 26 Id. 27 Id. 28 Id. 29 Id. 30 Id. 31 Id. 32 Id. 33 Id. 34 Act, Sec. 812, eliminating I.R.C. § 25B(h). 35 Act, Sec. 1304. 36	The	Act	does	not	define	“good	condition.”		 37 Act, Sec. 1217, amending I.R.C. § 170(f), effective for tax years beginning after Aug. 17, 2006. 38 Act, Sec. 1201, amending I.R.C. § 408(d).  The provision is inapplicable for any portion of a withdrawal that would have been otherwise taxable.  Id.   39 Act, Sec. 1202, amending I.R.C. § 170(e)(3)(C)(iv), effective for contributions made after 2005 and before 2008. 40 Act, Sec. 1204, amending I.R.C. § 170(e)(3)(D)(iv), effective for contributions made after 2005 and before 2008. 41 Act, Sec. 1206, adding I.R.C. § 170(b)(1)(E)(i), and redesignating existing paragraphs (E) and (F) as (F) and (G), effective for tax years through 2007. 42	The	term	“qualified	farmer	or	rancher”	means	a	taxpayer	whose	gross	income	from	the	trade	or	business	of	farming	as	defined	by	I.R.C. § 2032(e)(5) exceeds 50 percent of the taxpayer’s gross income for the tax year. 43 Act, Sec. 1206, adding I.R.C. § 170(b)(1)(E)(iv), and redesignating existing paragraphs (E) and (F) as (F) and (G), effective for tax years through 2007. 44 Act, Sec. 1203, amending I.R.C. § 1367(a)(2), effective for contributions made in tax years after Dec. 31, 2005, and before January 1, 2008. 45 Act, Sec. 1219, amending I.R.C. § § 6662, 6664, and adding I.R.C.	§	6695A,	effective	for	returns	filed	and	appraisals	prepared	with	respect	to	returns	or	submissions	filed	after	Aug.	17,	2006.2006. 9 An “at-risk” plan is (1) less than 80 percent funded, without regard to at-risk liabilities; and (2) less than 70 percent funded counting at-risk liabilities.   10 Act, Sec. 401. 11 Act, Sec. 302, amending 29 U.S.C. § 1055(g)(3) and I.R.C. § 417(e)(3), effective for plan years beginning after 2007. 12 Act, Sec. 903, amending I.R.C. § 414. 13 Under current law, employee contributions to traditional pension plans are not tax deferred.  Thus, few pension plans require or permit employee contributions.  Instead, many employers supplement their pension plans with separate 401(k) plans which permit employees to defer taxes on their contributions. 14 Act, Sec. 903, amending I.R.C. § 414. 15 Id. 16 Id. 17 The conversion impacts older employees to a greater degree inasmuch as an older employee has fewer years to build up savings. But, an employer’s alternative to switching to a hybrid plan may be to leave employees with no pension plan at all. 18 Act, Sec. 601, amending 29 U.S.C. § 1108(b), effective for advice provided after December 31, 2006. 19 Act, Sec. 830.  Also, in I.R. 2006-85 (May 31, 2006), IRS announced that, effective January 2007, taxpayers could split their refunds and deposit them in as many as three different bank accounts.  IRS will issue new Form 8888 for taxpayers to use to split	their	refunds	in	time	for	the	2007	filing	season.		 20 Act, Sec. 827, amending I.R.C. § 72(t)(2), effective for distributions after September 11, 2001. 21 Id. 22 Act, Sec. 826.  The rules are to be consistent with hardship withdrawals now allowed for spouses and I.R.C. § 152 dependents. Id. 23 Act, Sec. 829, amending I.R.C. § 402(c), applicable for distributions after 2006. 24 Act, Sec. 824, amending I.R.C. § 408A(e), effective for distributions after 2007.   25 Act, Sec. 811.Agricultural Law Digest 131CASES, REGULATIONS AND STATUTESby Robert P. Achenbach, JrAnIMALS BULL. The plaintiffs were injured when their car struck the defendant’s bull on a highway near the defendant’s farm. The trial court granted summary judgment for the defendant because of absence of any evidence of negligence by the defendant, particularly in maintaining the fences. The appellate court stated that the duty of an animal owner was to prevent an animal from escaping onto a highway if the owner could reasonably anticipate that the animal could escape and stray onto a highway. The court noted that the defendant had admitted that the bull involved had escaped at least once before and that the defendant did not check on the bull during the day of the accident. The court also noted that other factors should be considered in determining whether the defendant had acted reasonably, including the proximity of the	highway,	the	amount	of	traffic	on	the	highway,	the	time	of	day	and other surrounding conditions. The court reversed the grant of summary	judgment,	holding	that	sufficient	issues	of	fact	remained	to	be determined before the defendant could be considered, as a matter of law, to have acted reasonably in the methods chosen to prevent the bull from escaping.  The plaintiffs also argued that the doctrine of res ipsa loquitur should apply in the case to impose liability on the defendant; however, the appellate court  refused to rule on this issue until the trial court had an opportunity to rule on remand of the case.  Casillas v. Schubauer, 714 n.W.2d 84 (S.D. 2006). HORSES. The plaintiff was injured while riding a horse owned 

Pension Protection Act of 2006

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Pension Protection Act of 2006

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