The Pension Protection Act of 2006 (PPA’06) is a Federal law that has changed retirement plan provisions for both public and private sector pension plans. The majority of these changes affect private sector retirement plans that are subject to ERISA law. However, there are also some important changes for public retirement plans.

CCCERA is a public retirement plan.

The new law is currently being analyzed by pension professionals (legal experts, actuaries and plan administrators) in our 1937 Act systems, to verify the correct implementation of the law for our members. As we reach consensus on the PPA’06 (the law is roughly 1,000 pages), we will advise members of any applicable changes in procedure, IRS rulings, and/or plan elements.

Here’s a brief list of PPA ‘06 benefits for our members

IRC (Internal Revenue Code) 415(n) rules for permissive service credit

Members are now able to purchase service conversions (Tier 2 to Tier 3, for example) with 457 funds (trustee-to-trustee transfers). Previously, this funding option was prohibited by the IRS. This new IRS ruling is effective immediately. If you are considering a service conversion, please call CCCERA for details. 

These transfers may also be made between 457 plans of different employers.

The employer certifies the nature of the employment,

The appointment is necessary to fill a critically needed position before 180 days have passed,

The appointment has been approved by the employer’s governing body in a public meeting. (The appointment may not be placed on a consent calendar.)

Retired Safety Member Health Care Tax Benefit

Beginning January 1, 2007, eligible retired public safety members may elect to exclude, from their taxable income, up to $3,000 of their retirement income (including 457 accounts) if the amount is used to pay health or long-term care insurance premiums. This exclusion is only available if the safety member retired either on disability, or “on or after normal retirement age.” “Normal retirement age” is not a concept easily defined by 1937 Act law, and has not yet been determined for CCCERA. The premiums can be for the retired member, and for his/her spouse (but not, at this time, domestic partners, since this is a Federal law). Premiums must be paid directly to the insurer (not pass through the member’s hands). Elections for this option cannot be made until after the safety member is retired. Other elements of this tax exemption also require further analysis before CCCERA can implement this provision. We will notify eligible members as soon as answers to these procedural questions are available.

Early Retirement Plan Distribution Penalty Eliminated

Public Safety employees who separate from service after age 50 will not be subject to a “10% early withdrawal penalty” on payments from a defined benefit plan. This change in the tax code is effective immediately. 

IRS Rules on New $3,000 Retired Safety Officer Tax Exclusion

For more information, please see IRS Publication Number 575, pages 5 and 6. (Link to IRS HOME page on CCCERA’s links page.) Report your total distributions on Form 1040, line 16a; Form 1040A, line 12a; or Form 1040NR, line 17.Enter PSO next to the appropriate line on which you report the taxable amount. Please consult the IRS publication for complete instructions.