Pension Protection Act of 2006
What Was the Pension Protection Act of 2006?
The Pension Protection Act of 2006 (PPA) made huge changes to U.S. pension plan laws and regulations. Endorsed into law by President George W. Bush on Aug. 17, 2006, the PPA tried to safeguard retirement accounts and hold companies that underfunded existing pension accounts accountable.
The law likewise made several pension provisions from the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) permanent, including the increased individual retirement account (IRA) contribution limits and increased salary deferral contribution limits to a 401(k). It likewise endeavored to reinforce the overall pension system and reduce the dependence on the federal pension system and the Pension Benefit Guaranty Corporation.
Understanding the Pension Protection Act of 2006
The Pension Protection Act of 2006 was the federal government's approach to closing the provisos that permitted the companies that paid into the Pension Benefit Guaranty Corporation to cut pension funding. Those escape clauses made issues for the large numbers of U.S. workers who take part in defined benefits and pension plans inside the private sector.
While trying to set aside cash, a few employers found ways of cutting funding for pension plans and skip payments. Others chose to end the plans by and large, making a greater obligation for the PBGC. To close the provisos that made it feasible for organizations to skip payments, the PPA currently requires those at legitimate fault for underfunding to pay higher premiums.
The Pension Protection Act of 2006 brought about the main changes made to pension arrangements since the Employee Retirement Income Security Act of 1974 (ERISA). The act likewise tended to a number of other retirement investment vehicles; specifically, those employees eligible for 401(k) benefits received several benefits from the law's entry too.
Special Considerations
401(k) Plans
The legislation requires all employees to be automatically enrolled in the 401(k) plan when offered to them. Lawmakers looked for the automatic enrollment provision to help the people who may not be know all about retirement options build their retirement savings. What's more, the change urged employers to prepare their employees on the most proficient method to invest and plan for retirement.
Many saw the law's section as a step forward for behavioral finance. Behavioral finance research shows that automatic enrollment and investor education make employees pay more thoughtfulness regarding their financial planning than when left to explore the interaction all alone.
The law protected retirement plans as well as the safe harbor and automatic enrollment provisions additionally gave benefits to companies.
Features
- The Pension Protection Act looked to safeguard retirement accounts and hold companies that underfunded existing pension accounts accountable.
- The law likewise made several pension provisions from the Economic Growth and Tax Relief Reconciliation Act of 2001 permanent, including the increased individual retirement account (IRA) contribution limits and increased salary deferral contribution limits to a 401(k).
- The legislation makes it simpler to enlist employees into their 401(k) plan.
