The Pension Protection Act of 2006

Instructor: Tisha Collins Batis

Tisha is a licensed real estate agent in Texas. She holds bachelor's in legal studies and a master's degree in criminal justice.

The Pension Protection Act of 2006 was signed into law by President George W. Bush. This lesson will discuss the Act, so that the reader will have a strong grasp of the Act itself and its purpose.

The Pension Protection Act of 2006

Imagine working at a full-time job for decades. The entire time, you've contributed to a pension. Over the years, you have contributed thousands of dollars to your pension. You have dreamed of the day you can retire and spend every day at the beach, enjoying the fruits of your labor. Unfortunately, you find out that your defined pension plan has defaulted. What happened to all of your money? What will you do now? You will be 65 next year and want to enjoy the retirement that you've been waiting for.

Details of the Pension Protection Act and Related Acts

On August 17, 2006, President George W. Bush signed the Pension Protection Act of 2006 (PPA) into law on that day. Prior to reaching the President for signature, the Act had passed through the House of Representatives (on a vote of 279-131) and the Senate (by a vote of 93-5). Prior to the passage of this bill in the House and Senate, there was another bill that was introduced. It was the Pension Security and Transparency Act, introduced in the Senate. The bill sought to reform pensions just as the PPA ultimately did. Instead, the PPA came out on top. Its purpose was to ensure that pensions were safe in the future, with the goal of ensuring that the scenario above didn't occur again.

The PPA did more than just protect pensions, as the name implies. There were a couple different laws that were in place prior to the PPA. These were the Employee Retirement Income Security Act of 1974 (ERISA) and the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). The PPA was the first act regarding pension plans that made significant changes in comparison to the ERISA, since ERISA was enacted 32 years prior. In addition, the PPA affected legislation that was originally found in the EGTRRA.

The PPA contained provisions for single-employer plans, multi-employer plans, defined contribution plans, and some miscellaneous provisions. The PPA made many changes to the EGTRRA. For example, the enactment of PPA allowed a scheduled expiration of the EGTRRA to be avoided. Instead, the EGTRRA was made permanent.

Background of the PPA

The PPA had been planned long before President Bush signed the Act in 2006. As far back as 2005, his administration was looking for ways to strengthen pensions. One problem was the weaknesses they detected in the Pension Benefit Guaranty Corporation (PBGC). Those weaknesses involved a lack of requirements for the sponsors of underfunded plans to make deficit reduction contributions, plan assets and liabilities were not measured accurately, underfunded plans had the ability to amortize their shortfalls over periods of up to 30 years, and some sponsors had the ability to avoid making contributions simply because they had made more than the minimum contributions in the past. If these weaknesses had been allowed to continue, the result may have been the PBGC's inability to pay its debts.

Effects of the PPA

With the enactment of the PPA, the PBGC's weaknesses that were previously a concern were taken care of. Additionally, provisions previously found under EGTRRA were made permanent.

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