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What is the Pension Protection Act? Thumbnail

What is the Pension Protection Act?

The Pension Protection Act (PPA), enacted in 2006, is a crucial federal law aimed at fortifying the financial stability of defined-benefit pension plans while bolstering safeguards for workers' retirement savings. Noteworthy provisions within the PPA incentivize employers to provide defined contribution plans, such as 401(k)s, and enhance the disclosure of retirement plan details to participants.

A primary objective of the PPA is to ensure that pension plans maintain adequate funding to fulfill their commitments to retirees. Mandated funding requirements compel plan sponsors to make annual contributions based on thorough actuarial assessments of liabilities. Should a plan's funding dip below specified levels, corrective measures are prescribed by the PPA, including additional contributions or adjustments to future benefit accruals.

An important provision of the PPA promotes automatic enrollment in retirement plans, empowering employers to enroll employees by default unless they choose to opt out. This measure is intended to boost participation rates and bolster retirement readiness.

Transparency and disclosure are further emphasized by the PPA, demanding that plan sponsors furnish participants with comprehensive information regarding plan fees, expenses, and investment alternatives. This transparency empowers participants to make well-informed decisions regarding their retirement savings and investment strategies.

In essence, the Pension Protection Act plays a pivotal role in shoring up defined benefit pension plans, fostering the adoption of defined contribution plans, and enhancing the transparency and accessibility of retirement plan information. By safeguarding workers' retirement savings, the PPA contributes significantly to financial security in retirement.