Explaining the Pension Protection Act

Passed in 2006, the Pension Protection Act (PPA) is a federal law that aims to boost the funding of defined-benefit pension plans and enhance workers’ retirement savings protection. The PPA has provisions that promote the offering of defined contribution plans, such as 401(k)s, by employers and that require better disclosure of retirement plan information to participants.

A key objective of the PPA is to make sure that pension plans have enough funds and can pay their obligations to retirees. The law mandates that plan sponsors follow certain funding requirements, such as making yearly contributions, based on actuarial estimates of the plan’s liabilities. If a plan drops below a certain funding level, the PPA obliges the plan sponsor to take remedial action, such as making extra contributions or cutting future benefit accruals.

The PPA also has provisions that support employers to offer defined contribution plans, such as 401(k)s. One such provision is the automatic enrollment feature, which enables employers to automatically enroll new employees in the plan unless the employee opts out. This has been proven to raise plan participation rates and help employees save for retirement.

Another vital aspect of the PPA is the demand for improved transparency and disclosure of retirement plan information. The law mandates that plan sponsors provide participants with more comprehensive information about their plan’s fees, expenses, and investment options. This helps participants make more informed choices about how to save and invest for retirement.

In summary, the PPA is a significant piece of legislation designed to boost the funding of defined benefit pension plans, foster the adoption of defined contribution plans, and enhance the transparency and disclosure of retirement plan information. By doing so, the PPA helps safeguard workers’ retirement savings and provides greater financial security in retirement.