YOU ASK:

How does the Pension Protection Act of 2006 protect the defined contribution retirement plans?

WE ANSWER:

The Pension Protection Act of 2006 is an important legislative measure that ensures and protects the pension income of millions of American participants in private retirement plans. Section 401k and defined-contribution plans are the ones most affected by the Pension Protection Act.

Pension Protection Act Provisions

The Pension Protection Act of 2006 is the most significant piece of pension plan legislation that has been passed after the enactment of The Employee Retirement Income Security Act of 1974 (ERISA) that protects the rights of corporate pension plan participants. The Pension Protection Act of 2006 builds on ERISA, increasing the employers' obligations and providing further incentives for employee enrolment in defined contribution plans. The Pension Protection Act basic provisions can be summed up as follows:

  • The Pension Protection Act provides incentives for employees to participate in their companies' retirement plans by automatically enrolling employees who are eligible into their employers' defined-contribution plans. This eases the whole procedure and employees can always opt out of the pension plan at any time if they do not wish to participate.
  • The Pension Protection Act of 2006 makes higher contribution limits, which were otherwise about to expire in 2010, permanent.
  • Under the Pension Protection Act, the providers of defined-contribution retirement plans are permitted to advise the plan participants as to how to invest their assets. The plan administrators, however, are required to base their advice on a special computerized model.
  • The 2006 legislation imposes restrictions on the period of time in which employees are allowed to keep company stock before they sell it. If your employer has matched your contributions and paid in company stock, you have the right to sell it after being in service for three years. This provision aims at diminishing the risk that many employees take by investing too much of their retirement funds in company stock in case the company declares bankruptcy.
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