On August 3, 2006, the Senate passed HR 4, the Pension Protection Act of
2006. The Senate passage of the most comprehensive pension reform
legislation in decades comes on the heels of House passage on July 28, 2006. On
Aug. 17, 2006, President Bush signed the Pension Protection Act of 2006 (PPA
2006 or H.R. 4) into law. Most importantly, the legislation includes the
permanent extension of the EGTRRA retirement savings provisions. The
legislation also overhauls pension funding rules, and includes reforms
affecting hybrid plans, defined contribution plans, and nonqualified
deferred compensation plans. Below please find a very brief summary of the
Act’s provisions, as they relate to retirement plans.
• 401(k) plans with
auto-enrollment, default investments such as strategic allocation or target
maturity funds, annual deferral increases, and a safe harbor plan design
provided certain requirements are met.
• Investment advice through
the plan sponsor’s retirement plan provider or an independent third party.
Advice may take the form of a computer-based model that is audited by an
independent third party, or it may be in the form of a compensation-based
model in which a credentialed financial adviser delivers the advice for a
fee that is not dependent on the participant’s decision of whether or how
to follow the advice.
• Economic Growth and Tax
Relief Reconciliation Act of 2001 (“EGTRRA”) permanence. Certain
provisions of EGTRRA that were scheduled to sunset have been made permanent.
These provisions include increased contribution limits to retirement plans
and IRAs, catch-up contributions for individuals age 50 and older, the
Saver’s Credit for employees who meet certain income requirements, and the
Roth 401(k) plan.
• Defined contribution plan
design and administration provisions including annuities as an optional form
of distribution, investment mapping, accelerated vesting, and expansion of
hardship withdrawal rules.
• A new plan design, DB(k),
to become effective beginning in 2010. This new plan design fully integrates
a defined benefit feature as well as a defined contribution feature.
For a more detailed view of the Act’s provisions, courtesy of the
American Society of Pension Professionals and Actuaries, please click on the
link below.
http://www.asppa.org/government/comment08-02-06.htm
