The Pension Protection Act is public legislation that was enacted to protect retirement accounts and to hold companies that have underfunded existing pension accounts accountable.
In 2006, the President signed an amendment to the original PPA in an effort to reform the pension system. As more and more organizations who were required to pay into the Pension Benefit Guaranty Corporation were finding loopholes that allowed them to cut on pension funding, the Federal government recognized that something needed to be done.
Read on, and learn more about the problems that created a need for the revision and what the amendments require of employers.
Why Did Congress Feel a Need to Enact the Act?
Companies have been finding loopholes in their pension funding plans for years, and this has created problems for more than 44 million American workers and retirees who have been participating in defined benefits and pensions within the private sector. Since the Pension Benefit Guaranty Corporation is responsible for guaranteeing plans that are funded through investment returns earned through the payment of insurance premiums, it is critical that the plans are funded appropriately.
Related: What is the Employee Retirement Income Security Act?
Unfortunately, in an effort to save money, some employers within the private sector have found ways to cut funding for the pension plans and skip payments. Others have decided to terminate the plans all together, creating a greater obligation for the PBGC. To close the loopholes that made it possible for organizations to skip payments, the PPA now requires those guilty of underfunding to pay higher premiums.
How Does This Act Affect Employees?
While the name of the act might imply that only employees receiving a pension benefit plan will be affected, the legislation also affects those who receive 401(k) benefits. This is why all employed individuals should learn about acts that provide them with protections and rights. The main purpose was to address the major shortfall of pension insurance funding, but the Pension Protection legislation also addresses major issues that have come up for private-sector 402(k) sponsors and workers who choose to participate.
The legislation now requires that all employees are automatically enrolled in the 401(k) plan when it is offered. By signing employees up by default, those who are not familiar with their benefits will still build a retirement savings. These employees do have the option to opt-out, but must request this through the benefits department. This was written into the law to give employers an incentive to train their employees on investing since more than 30 percent of workers who are eligible for the benefit do not participate it when they are required to take action themselves.
How the Act Protects Employers
The Pension Protection Act benefits both employees and employers in two very different ways. Not only are retirement plans protected, but employers can benefit from the safe harbor automatic enrollment provisions provide them with from the fines that they must pay if they are not in compliance. Since it costs a lot less to manage automatic enrollment plans, employers are rushing to make the change.
As a private-sector employee or even a benefits manager, it is your responsibility to know acts that affect your benefits in the long haul. The Pension Protection Act is the biggest reform package to be passed since 1974 and will be one that can really help to strengthen the private pension system.