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President George W. Bush signed into law The Pension Protection Act (PPA) on August. 17, 2006. The PPA has some real implications addressing plan sponsors, financial professionals, and investment participants.
The intent of this bill is to strengthen workers’ retirement investments by:
- Changing defined benefit plan funding rules,
- Establishing a legitimate cash balance plans,
- Promoting the automatic enrollment in 401(k) plans,
- Establishing the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) as a permanent improvement, and
- Allowing the creation of a combination defined benefit and 401(k) plan, known as the DB (k).
The bill extends the law and allows the use of corporate bond rates for funding the investment through 2006 and 2007. Some of the changes were made effective during 2006 and 2007, but many of the changes will become effective with the plan years beginning in 2008.
On November 1, 2006, The Principal Financial Group (which ranks number one in plans administered according to a 2006 Spectrem Group analysis of fully-bundled 401(k) providers) issued a press release on their website:
“The Pension Protection Act dramatically changes the retirement savings landscape. It has the potential to help millions of Americans achieve more secure retirements,” said Daniel J. Houston, executive vice president, Retirement and Investor Services at The Principal®. “We took seriously our role as a consultant to Congress as they drafted this key legislation and we take seriously our role in helping financial professionals and our plan sponsor clients prepare for and implement the changes mandated by this historic legislation.” …more
This bill represents sweeping changes in the retirement savings investment arena and has a deepest impact since the landmark passage of the Employee Retirement Income Security Act (ERISA) way back in 1974.
The PPA apparently require almost 1,000 pages to explain, which makes the work for financial professionals and plan sponsors confusing and time consuming to understand. The Principal Financial Group®, is the leading National 401(k) and total retirement solutions innovator, introduced a comprehensive educational program with simple tools designed to assist in the navigation of the numerous changes made by the passage of the PPA retirement savings legislation. You can get more information about the PPA on their website, where they offer a new Pension Protection Act Guide.
® “The Principal Financial Group” and “The Principal” are registered service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
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