President George W. Bush in August signed into law the Pension Protection Act of 2006 (H.R. 2830), aimed at strengthening retirement security for American workers and addressing outdated federal pension laws.
The new legislation prohibits companies from pronouncing employee pensions financially sound when serious problems are present. Further, companies managing single-employer traditional pensions or defined-benefit plans (those that offer a fixed and secure benefit at retirement), must fully fund those plans by 2015.
In an effort to salvage an overburdened Pension Benefit Guaranty Corporation (PBGC), the Pension Protection Act includes new reforms that call for companies to pay higher premiums in order to cover PBGC insurance. The federal agency has amassed a deficit of nearly $24 billion as a result of bailing out corporations that have terminated their pension plans.
In welcome news for bankrupt carriers such as Delta and Northwest, airlines will receive additional time to meet their pension obligations. Likewise, large defense contractors will benefit from a three-year delay before they must abide by the new rules.
Of particular interest to insurance producers, the new legislation creates combination insurance products for long term care, life, and other insurance products. The reform is intended to attract consumers by allowing them to receive the benefits of multiple insurance protections in a single product.
The pension bill also includes several provisions to enhance pension participation and retirement savings, including the permanent extension of a 2001 tax-relief law that increased the annual contribution limits for IRAs and qualified pension plans, created additional catch-up contributions for individuals age 50 and older, and created incentives for small employers to offer pension plans.
With the passage of the Pension Protection Act, the president hopes Congress will now focus on the future of Social Security.
