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H.R. 4—Pension Protection Act of 2006
NRLN's Summary Of Pension Protection Act of 2006
The NRLN has analyzed the 900-plus pages of the Pension Protection Act of 2006 and has summarized the key provisions of the legislation as it affects retirees from large corporations. NRLN Grassroots Network members sent some 40,000 letters to members of Congress to urge passage of the legislation with specific provisions providing stronger pension safeguards. Click here to read the summary of the act that signed into law by President George W. Bush on Aug. 17, 2006.
Purpose:
Amends the Employee Retirement Income Security Act (ERISA) and the Internal
Revenue Code to establish new minimum funding standards for single-employer and
multiemployer defined benefit pension plans.
Extends interest rate rules
for the funding standard account that require the use of a rate based on
long-term investment grade corporate bonds rather than 30-year Treasury
securities. Amends the interest rate calculation for lump sum distributions. Requires single-employer
plans that are fully-funded to pay variable-rate premiums to the Pension Benefit
Guaranty Corporation (PBGC) . Sets forth alternative funding rules for
commercial passenger airline defined benefit plans. Sets forth requirements
related to funding notices that must be provided by defined benefit plans.
Allows fiduciary advisers of
a plan to give investment advice to participants or beneficiaries if certain
requirements are met.
Sets forth rules that govern
whether plans fail to meet requirements that prohibit age discrimination in
defined benefit pension plans.
Increases deduction limits
for single-employer and multiemployer plans.
Makes permanent provisions from the
Economic Growth and Tax Relief Reconciliation Act of 2001 related to individual
retirement accounts and pensions. Allows annuity contracts and life insurance
contracts to include long-term care insurance contracts.
Amends provisions
governing the benefits of tax court judges.
Requires defined
contribution plans holding publicly traded securities to provide employees with:
(1) the opportunity to divest employer securities; and (2) at least three
investment options other than employer securities. Allows employers to
automatically enroll employees in defined benefit plans. Sets forth provisions
governing the division of pension benefits upon divorce. Authorizes the Secretary of
the Treasury to establish or change the Employee Plans Compliance Resolution
System and any other employee plans correction policies. Prohibits reduction of
unemployment compensation as a result of pension rollovers. Amends the Internal Revenue
Code to modify provisions related to charitable contribution, tax-exempt
organizations, and supporting organizations.
Amends the Economic Growth
and Tax Relief Reconciliation Act of 2001 to permanently extend qualified
tuition program provisions. Miscellaneous Trade and
Technical Corrections Act of 2006 - Amends the Harmonized Tariff Schedule of the
United States to adjust the duty for certain chemicals, textiles, household and
sporting goods, electronics, food, equipment and other items. Authorizes to
President to adjust the Tariff Schedule as necessary to carry out certain CAFTA
amendments.
Extends interest rate rules
for the funding standard account that require the use of a rate based on
long-term investment grade corporate bonds rather than 30-year Treasury
securities. Amends the interest rate calculation for lump sum distributions. Requires single-employer
plans that are fully-funded to pay variable-rate premiums to the Pension Benefit
Guaranty Corporation (PBGC) . Sets forth alternative funding rules for
commercial passenger airline defined benefit plans. Sets forth requirements
related to funding notices that must be provided by defined benefit plans.
Allows fiduciary advisers of
a plan to give investment advice to participants or beneficiaries if certain
requirements are met.
Sets forth rules that govern
whether plans fail to meet requirements that prohibit age discrimination in
defined benefit pension plans.
Increases deduction limits
for single-employer and multiemployer plans.
Makes permanent provisions from the
Economic Growth and Tax Relief Reconciliation Act of 2001 related to individual
retirement accounts and pensions. Allows annuity contracts and life insurance
contracts to include long-term care insurance contracts.
Amends provisions
governing the benefits of tax court judges.
Requires defined
contribution plans holding publicly traded securities to provide employees with:
(1) the opportunity to divest employer securities; and (2) at least three
investment options other than employer securities. Allows employers to
automatically enroll employees in defined benefit plans. Sets forth provisions
governing the division of pension benefits upon divorce. Authorizes the Secretary of
the Treasury to establish or change the Employee Plans Compliance Resolution
System and any other employee plans correction policies. Prohibits reduction of
unemployment compensation as a result of pension rollovers. Amends the Internal Revenue
Code to modify provisions related to charitable contribution, tax-exempt
organizations, and supporting organizations.
Amends the Economic Growth
and Tax Relief Reconciliation Act of 2001 to permanently extend qualified
tuition program provisions. Miscellaneous Trade and
Technical Corrections Act of 2006 - Amends the Harmonized Tariff Schedule of the
United States to adjust the duty for certain chemicals, textiles, household and
sporting goods, electronics, food, equipment and other items. Authorizes to
President to adjust the Tariff Schedule as necessary to carry out certain CAFTA
amendments.
Requires single-employer
plans that are fully-funded to pay variable-rate premiums to the Pension Benefit
Guaranty Corporation (PBGC) . Sets forth alternative funding rules for
commercial passenger airline defined benefit plans. Sets forth requirements
related to funding notices that must be provided by defined benefit plans.
Allows fiduciary advisers of
a plan to give investment advice to participants or beneficiaries if certain
requirements are met.
Sets forth rules that govern
whether plans fail to meet requirements that prohibit age discrimination in
defined benefit pension plans.
Increases deduction limits
for single-employer and multiemployer plans.
Makes permanent provisions from the
Economic Growth and Tax Relief Reconciliation Act of 2001 related to individual
retirement accounts and pensions. Allows annuity contracts and life insurance
contracts to include long-term care insurance contracts.
Amends provisions
governing the benefits of tax court judges.
Requires defined
contribution plans holding publicly traded securities to provide employees with:
(1) the opportunity to divest employer securities; and (2) at least three
investment options other than employer securities. Allows employers to
automatically enroll employees in defined benefit plans. Sets forth provisions
governing the division of pension benefits upon divorce. Authorizes the Secretary of
the Treasury to establish or change the Employee Plans Compliance Resolution
System and any other employee plans correction policies. Prohibits reduction of
unemployment compensation as a result of pension rollovers. Amends the Internal Revenue
Code to modify provisions related to charitable contribution, tax-exempt
organizations, and supporting organizations.
Amends the Economic Growth
and Tax Relief Reconciliation Act of 2001 to permanently extend qualified
tuition program provisions. Miscellaneous Trade and
Technical Corrections Act of 2006 - Amends the Harmonized Tariff Schedule of the
United States to adjust the duty for certain chemicals, textiles, household and
sporting goods, electronics, food, equipment and other items. Authorizes to
President to adjust the Tariff Schedule as necessary to carry out certain CAFTA
amendments.
Sets forth requirements
related to funding notices that must be provided by defined benefit plans.
Allows fiduciary advisers of
a plan to give investment advice to participants or beneficiaries if certain
requirements are met.
Sets forth rules that govern
whether plans fail to meet requirements that prohibit age discrimination in
defined benefit pension plans.
Increases deduction limits
for single-employer and multiemployer plans.
Makes permanent provisions from the
Economic Growth and Tax Relief Reconciliation Act of 2001 related to individual
retirement accounts and pensions. Allows annuity contracts and life insurance
contracts to include long-term care insurance contracts.
Amends provisions
governing the benefits of tax court judges.
Requires defined
contribution plans holding publicly traded securities to provide employees with:
(1) the opportunity to divest employer securities; and (2) at least three
investment options other than employer securities. Allows employers to
automatically enroll employees in defined benefit plans. Sets forth provisions
governing the division of pension benefits upon divorce. Authorizes the Secretary of
the Treasury to establish or change the Employee Plans Compliance Resolution
System and any other employee plans correction policies. Prohibits reduction of
unemployment compensation as a result of pension rollovers. Amends the Internal Revenue
Code to modify provisions related to charitable contribution, tax-exempt
organizations, and supporting organizations.
Amends the Economic Growth
and Tax Relief Reconciliation Act of 2001 to permanently extend qualified
tuition program provisions. Miscellaneous Trade and
Technical Corrections Act of 2006 - Amends the Harmonized Tariff Schedule of the
United States to adjust the duty for certain chemicals, textiles, household and
sporting goods, electronics, food, equipment and other items. Authorizes to
President to adjust the Tariff Schedule as necessary to carry out certain CAFTA
amendments.
Sets forth rules that govern
whether plans fail to meet requirements that prohibit age discrimination in
defined benefit pension plans.
Increases deduction limits
for single-employer and multiemployer plans.
Makes permanent provisions from the
Economic Growth and Tax Relief Reconciliation Act of 2001 related to individual
retirement accounts and pensions. Allows annuity contracts and life insurance
contracts to include long-term care insurance contracts.
Amends provisions
governing the benefits of tax court judges.
Requires defined
contribution plans holding publicly traded securities to provide employees with:
(1) the opportunity to divest employer securities; and (2) at least three
investment options other than employer securities. Allows employers to
automatically enroll employees in defined benefit plans. Sets forth provisions
governing the division of pension benefits upon divorce. Authorizes the Secretary of
the Treasury to establish or change the Employee Plans Compliance Resolution
System and any other employee plans correction policies. Prohibits reduction of
unemployment compensation as a result of pension rollovers. Amends the Internal Revenue
Code to modify provisions related to charitable contribution, tax-exempt
organizations, and supporting organizations.
Amends the Economic Growth
and Tax Relief Reconciliation Act of 2001 to permanently extend qualified
tuition program provisions. Miscellaneous Trade and
Technical Corrections Act of 2006 - Amends the Harmonized Tariff Schedule of the
United States to adjust the duty for certain chemicals, textiles, household and
sporting goods, electronics, food, equipment and other items. Authorizes to
President to adjust the Tariff Schedule as necessary to carry out certain CAFTA
amendments.
Makes permanent provisions from the
Economic Growth and Tax Relief Reconciliation Act of 2001 related to individual
retirement accounts and pensions. Allows annuity contracts and life insurance
contracts to include long-term care insurance contracts.
Amends provisions
governing the benefits of tax court judges.
Requires defined
contribution plans holding publicly traded securities to provide employees with:
(1) the opportunity to divest employer securities; and (2) at least three
investment options other than employer securities. Allows employers to
automatically enroll employees in defined benefit plans. Sets forth provisions
governing the division of pension benefits upon divorce. Authorizes the Secretary of
the Treasury to establish or change the Employee Plans Compliance Resolution
System and any other employee plans correction policies. Prohibits reduction of
unemployment compensation as a result of pension rollovers. Amends the Internal Revenue
Code to modify provisions related to charitable contribution, tax-exempt
organizations, and supporting organizations.
Amends the Economic Growth
and Tax Relief Reconciliation Act of 2001 to permanently extend qualified
tuition program provisions. Miscellaneous Trade and
Technical Corrections Act of 2006 - Amends the Harmonized Tariff Schedule of the
United States to adjust the duty for certain chemicals, textiles, household and
sporting goods, electronics, food, equipment and other items. Authorizes to
President to adjust the Tariff Schedule as necessary to carry out certain CAFTA
amendments.
Amends provisions
governing the benefits of tax court judges.
Requires defined
contribution plans holding publicly traded securities to provide employees with:
(1) the opportunity to divest employer securities; and (2) at least three
investment options other than employer securities. Allows employers to
automatically enroll employees in defined benefit plans. Sets forth provisions
governing the division of pension benefits upon divorce. Authorizes the Secretary of
the Treasury to establish or change the Employee Plans Compliance Resolution
System and any other employee plans correction policies. Prohibits reduction of
unemployment compensation as a result of pension rollovers. Amends the Internal Revenue
Code to modify provisions related to charitable contribution, tax-exempt
organizations, and supporting organizations.
Amends the Economic Growth
and Tax Relief Reconciliation Act of 2001 to permanently extend qualified
tuition program provisions. Miscellaneous Trade and
Technical Corrections Act of 2006 - Amends the Harmonized Tariff Schedule of the
United States to adjust the duty for certain chemicals, textiles, household and
sporting goods, electronics, food, equipment and other items. Authorizes to
President to adjust the Tariff Schedule as necessary to carry out certain CAFTA
amendments.
Sets forth provisions
governing the division of pension benefits upon divorce. Authorizes the Secretary of
the Treasury to establish or change the Employee Plans Compliance Resolution
System and any other employee plans correction policies. Prohibits reduction of
unemployment compensation as a result of pension rollovers. Amends the Internal Revenue
Code to modify provisions related to charitable contribution, tax-exempt
organizations, and supporting organizations.
Amends the Economic Growth
and Tax Relief Reconciliation Act of 2001 to permanently extend qualified
tuition program provisions. Miscellaneous Trade and
Technical Corrections Act of 2006 - Amends the Harmonized Tariff Schedule of the
United States to adjust the duty for certain chemicals, textiles, household and
sporting goods, electronics, food, equipment and other items. Authorizes to
President to adjust the Tariff Schedule as necessary to carry out certain CAFTA
amendments.
Amends the Economic Growth and Tax Relief Reconciliation Act of 2001 to permanently extend qualified tuition program provisions. Miscellaneous Trade and Technical Corrections Act of 2006 - Amends the Harmonized Tariff Schedule of the United States to adjust the duty for certain chemicals, textiles, household and sporting goods, electronics, food, equipment and other items. Authorizes to President to adjust the Tariff Schedule as necessary to carry out certain CAFTA amendments.
Status: Passed by House 279-131 on July 28, 2006. Passed by Senate 93-5 on August 3, 2006. On August 17, 2006, President George W. Bush signed the legislation into law.
NRLN
Position: The NRLN is concerned that the views of older
workers and retirees be given proper consideration on the following key issues:
Cash Balance
Conversions
The NRLN strongly
supports the prospective provision in the Senate bill eliminating wearaway for
normal and early retirement. It is extremely important that this provision be
included in the final bill and that members of Congress oppose any provision
which would weaken these protections for retirees.
However, the NRLN
strongly urges opposing any and all efforts to retroactively legalize cash
balance conversions. The legal risks associated with the conversion of defined
benefit plans to cash balance plans were well-known to employers when they
undertook these conversions and yet they were still willing to move forward.
As
a result, thousands of older worker have suffered the “wearaway” of earned
benefits as well as the loss of early retirement benefits – and Congress should
not change the law retroactively to protect those companies that acted unfairly
and unlawfully.
The NRLN strongly
supports the prospective provision in the Senate bill eliminating wearaway for
normal and early retirement. It is extremely important that this provision be
included in the final bill and that members of Congress oppose any provision
which would weaken these protections for retirees.
However, the NRLN
strongly urges opposing any and all efforts to retroactively legalize cash
balance conversions. The legal risks associated with the conversion of defined
benefit plans to cash balance plans were well-known to employers when they
undertook these conversions and yet they were still willing to move forward.
As
a result, thousands of older worker have suffered the “wearaway” of earned
benefits as well as the loss of early retirement benefits – and Congress should
not change the law retroactively to protect those companies that acted unfairly
and unlawfully.
However, the NRLN
strongly urges opposing any and all efforts to retroactively legalize cash
balance conversions. The legal risks associated with the conversion of defined
benefit plans to cash balance plans were well-known to employers when they
undertook these conversions and yet they were still willing to move forward.
As
a result, thousands of older worker have suffered the “wearaway” of earned
benefits as well as the loss of early retirement benefits – and Congress should
not change the law retroactively to protect those companies that acted unfairly
and unlawfully.
As a result, thousands of older worker have suffered the “wearaway” of earned benefits as well as the loss of early retirement benefits – and Congress should not change the law retroactively to protect those companies that acted unfairly and unlawfully.
Section 420 Transfers
The NRLN strongly endorses the principle of a 100% funding target. However, since markets are inherently volatile, the NRLN continues to believe that an existing surplus should not be drained.
The NRLN is adamantly
opposed to the Senate provision (Sec. 1331 of the Senate bill) which modifies
Section 420 of the Internal Revenue Code to allow transfer of the plan surplus
to IRC Section 401(h) healthcare trusts to the extent that assets of the plan
exceed 115% of the plan’s current liability. Sec. 1331 would be extremely
harmful to retirees. Currently, plan sponsors can only transfer assets if the
plan’s assets exceed 125% of the pension plan’s current liability.
This 125%
rule created a cushion of protection of 35% (the difference between the cushion
required to be left behind after a transfer and the plan’s funding target of 90%
of current liability). Reducing the funding cushion to 115% of current
liability would reduce the funding corridor to 15% (the difference between the
asset cushion and the bill’s funding target of 100% of current liability).
A
minor recession, lower interest rates, lower stock market values and/or a
financially weakened plan sponsor will cause even more risk for plan
terminations than recently experienced. A longer maintenance of cost period and
promises to restore funding levels to 115% will do little good if the employer’s
deteriorating financial situation impairs its ability to fully fund the plan,
which could result in more plan terminations or freezes. Moreover, this change
would leave non-represented participants vulnerable to unnecessary risks.
This 125%
rule created a cushion of protection of 35% (the difference between the cushion
required to be left behind after a transfer and the plan’s funding target of 90%
of current liability). Reducing the funding cushion to 115% of current
liability would reduce the funding corridor to 15% (the difference between the
asset cushion and the bill’s funding target of 100% of current liability).
A
minor recession, lower interest rates, lower stock market values and/or a
financially weakened plan sponsor will cause even more risk for plan
terminations than recently experienced. A longer maintenance of cost period and
promises to restore funding levels to 115% will do little good if the employer’s
deteriorating financial situation impairs its ability to fully fund the plan,
which could result in more plan terminations or freezes. Moreover, this change
would leave non-represented participants vulnerable to unnecessary risks.
A minor recession, lower interest rates, lower stock market values and/or a financially weakened plan sponsor will cause even more risk for plan terminations than recently experienced. A longer maintenance of cost period and promises to restore funding levels to 115% will do little good if the employer’s deteriorating financial situation impairs its ability to fully fund the plan, which could result in more plan terminations or freezes. Moreover, this change would leave non-represented participants vulnerable to unnecessary risks.
Transparency and Disclosure
The NRLN appreciates the effort that was made in S. 1783 and H.R. 2830 to provide for transparency and disclosure of plan viability to plan participants. Nonetheless, there are several ways these provisions can be strengthened to further protect plan participants.
First, the NRLN believes that the transparency of pension plan activity through the greater availability to plan participants of certain plan documents is essential to the protection of pension assets. Plan administrators should be required to provide, on request, all relevant and updated documents that participants and retirees need to ascertain a fuller picture of the plan’s financial status.
In particular, we believe ERISA Section 104 should be modified so as to require disclosure upon request of a participant of certain important documents related to the plan’s financial health, asset allocation, and investment guidelines and proxy voting guidelines.
Second, the NRLN strongly
urges the inclusion of language that would allow disclosure to plan
participants, on request, of plan information disclosed as part of an
underfunded plan’s Section 4010 filing to the PBGC. While plan sponsors may
have a legitimate interest in protecting proprietary information concerning
their business, the effective hiding of the important (but nonproprietary)
disclosures concerning the financial situation of the pension plan runs counter
to the otherwise admirable purposes of this legislation.
The barebones and
contingent Section 4010 notice to participants currently required by ERISA is
not an adequate substitute for at least making the plan information within the
4010 filing available on request. These filings should be available to plan
participants within 30 days of written request in order to give participants the
opportunity to review these documents in a timely manner.The NRLN believes the
Senate bill strikes the correct balance.
While the NRLN applauds the objective
of both bills to encourage investment advice for 401(k) plan participants, it is
very important to eliminate the inevitable conflicts of interest that would
result if, as the House bill permits, the 401(k) plan provider is allowed to
advise participants on the choice among investment options that vary in terms of
commission and cost. It is most prudent to require that investment advisors
have no potential conflicts of interest.
The barebones and
contingent Section 4010 notice to participants currently required by ERISA is
not an adequate substitute for at least making the plan information within the
4010 filing available on request. These filings should be available to plan
participants within 30 days of written request in order to give participants the
opportunity to review these documents in a timely manner.The NRLN believes the
Senate bill strikes the correct balance.
While the NRLN applauds the objective
of both bills to encourage investment advice for 401(k) plan participants, it is
very important to eliminate the inevitable conflicts of interest that would
result if, as the House bill permits, the 401(k) plan provider is allowed to
advise participants on the choice among investment options that vary in terms of
commission and cost. It is most prudent to require that investment advisors
have no potential conflicts of interest.
While the NRLN applauds the objective of both bills to encourage investment advice for 401(k) plan participants, it is very important to eliminate the inevitable conflicts of interest that would result if, as the House bill permits, the 401(k) plan provider is allowed to advise participants on the choice among investment options that vary in terms of commission and cost. It is most prudent to require that investment advisors have no potential conflicts of interest.