What is the Pension Protection Act?

The Pension Protection Act (PPA) is a federal law that was passed in 2006. It was designed to strengthen the funding of defined-benefit pension plans and increase workers’ retirement savings protection. The PPA includes provisions that encourage employers to offer defined contribution plans, such as 401(k)s, and that improve the disclosure of retirement plan information to participants.

One of the primary goals of the PPA is to help ensure that pension plans are adequately funded and able to meet their obligations to retirees. The law requires that plan sponsors meet certain funding requirements, such as making annual contributions, based on actuarial calculations of the plan’s liabilities. If a plan falls below a certain funding level, the PPA requires the plan sponsor to take corrective action, such as making additional contributions or reducing future benefit accruals.

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

Another critical aspect of the PPA is the requirement for increased transparency and disclosure of retirement plan information. The law requires that plan sponsors provide participants with more detailed information about their plan’s fees, expenses, and investment options. This helps participants make more informed decisions about how to save and invest for retirement.

Overall, the PPA is an important piece of legislation designed to strengthen the funding of defined benefit pension plans, encourage the adoption of defined contribution plans, and improve the transparency and disclosure of retirement plan information. By doing so, the PPA helps protect workers’ retirement savings and provides greater financial security in retirement.