On August 17, 2006, President Bush signed into law the Pension Protection Act of 2006 (“Act”).  This Act is considered by many to be one of the most sweeping reforms of America’s pension laws in over 30 years.  As the name of the Act indicates, it is designed to protect pensions and also to expand opportunities to build your own nest egg for retirement. 

The need for this Act came about because some companies were not saving enough money to cover existing pensions and thus causing former employees to receive smaller and inadequate checks for their pensions.

The Act requires companies who underfund their pension plans to pay additional premiums.  It also requires companies that terminate their pensions to provide extra funding for the pension system so as to decrease the need for money from tax payers.  The Act insists that companies measure their obligations of their pension plans more accurately so that they know how much money they have for their pension plans at all times. 

The Act closes loopholes that use to allow companies who underfunded plans to skip out on pension payments.  Also, the Act raises caps on the amount of money employers can put into their pension plans so they can add more during good times and build up a cushion that can keep pensions solvent in lean times.

     Furthermore, the Act prevents companies with underfunded pension plans from digging the hole deeper by mandating that companies who promise extra benefits to their workers must pay for those promises up front.

In addition to reforming the laws governing traditional private pensions, the Act also contains provisions to help workers who save for retirement through defined contribution plans like IRAs and 401(k)s. 

The Act removes barriers that prevent companies from automatically enrolling their employees into IRAs and 401(k)s and ensures that workers have more information about the performance of their accounts.  However, an employee may withdraw from any plan that they are enrolled in, if they so choose.

The Act helps the workers in that it provides for greater access to professional advice about investing safely for retirement and gives workers greater control over how their accounts are invested.

Essentially, this Act provides that businesses that offer a private pension plan to their employees have a duty to set aside enough money now, so their workers get what they were promised when they retire.