What is the Pension Protection Act?

The Pension Protection Act of 2006 was passed in an effort to help employees who receive retirement benefits or pension plans. The entire purpose of the passage was to help employees secure the savings so that they are assured that they will have a savings plan to access when they hit retirement. To make this possible, new rules took effect in 2008 that completely changed the way that employer-sponsored retirement plans are funded and managed. If you would like to learn more about how this act helps you prepare for the future, read on and find out about these new rules and who they apply to.

What Are the New Rules As They Pertain to Employers?

The 401(k) plan is an employer-sponsored retirement savings plan that can be funded with pre-tax dollars. One of the major benefits of choosing this type of retirement vehicle is that your employer will often match your contributions, up to a certain limit, virtually doubling your retirement balance when you are putting away money. This new act that was proposed in 2006 took effect because one-third of all employees who receive the benefit do not join because they do not know they have the option or they do not think that they can afford it.

With so many people missing out on the benefit, the new act now sets new rules for employers. They can now automatically enroll their employees into the savings plan unless they physically opt out. When this happens, the employer will set contributions to 3% and then raise this by 1% each year. Employers will also give investment advice, give the options to buy stock, and offer after-tax Roth IRAs to those who qualify. This ensures that everyone has a retirement account unless they have reviewed the benefit and chosen not to take advantage.

What Are the New Rules for Employees?

Employers have been able to make changes, but there are also changes to how employees can contribute or withdraw from their accounts. Since the act was passed, employees can now contribute as much as $5000 per year into an IRA and $15,500 into a 401(k),with the option for catch up contributions after 50.

If you retire early or switch jobs, the act makes it so that you are guaranteed the option to roll over the balance to a qualified plan where it may earn more money or be easier to manage. If you have a beneficiary, there is also a rule that allows that beneficiary to roll over their inheritance into an IRA where there will not be taxable income until it is withdrawn from. This eliminates the problems that occur when beneficiaries are taxed on their inheritance.

Saving for the future is a must, especially with the danger that the Social Security Administration is in. The Pension Protection Act was enacted to ensure that employees who have retirement benefits through work would have protection. Auto-enrollment features are designed to safe harbor employees while still protecting employers from being sued in the future for failing to comply with regulations. Knowing what types of acts exist and how they pertain to you is important as a citizen and as part of the workforce. Educate yourself more on the Pension Protection Act, and know your rights.

See also:  What is the Employee Free Choice Act?