Congress Passes Pension Reform Legislation

October 12, 2006 by Beeson Tayer & Bodine

This past August, Congress passed the Pension Protection Act of 2006 (PPA), often described as the most sweeping retirement plan legislation since 1974’s Employee Retirement Income Security Act (ERISA). The PPA makes changes for single-employer pension plans, multiemployer labor/management (so-called Taft-Hartley) pension plans, as well as 401(k), IRAs and other “defined contribution” retirement plans. For pension plans, the overall purpose of PPA is to make funding rules stricter, to increase ramifica- tions for failing to satisfy funding rules, and to make benefit increases more difficult to justify.

The future effect of the Act is unclear, but a recent survey found that 17% of employers think they will freeze their pension plans as a result of PPA. For Taft-Hartley plans the Act imposes greater liability on employers if a plan fails to meet the PPA’s much stricter pension funding requirements. Importantly, for plans that are found to have an “endangered” or, even worse, a “critical” funding status, the Act imposes requirements on bargaining parties to negotiate corrections to a sus- tainable level. If the bargaining parties reach an impasse, future accrual of pension credits must be reduced.

The Act also increases the amount of information that plans must provide to participants, unions and employers. A 1994 federal law already required plans to send an annual pension funding notice, but the PPA has expanded the information required in the notice. These annual notices will inform participants of the funding level of the plan, expressed as a ratio of projected assets to projected benefit liabilities. The new notices will not only indicate the plan funding status, net assets and liabilities, but no matter how well funded a plan is, the notices must also include an ex- planation of the level of benefits that are federally-insured should the plan go under, as well as an explanation of the limits of the federal guarantee. Thus it can be anticipated that the new notices will in many cases unnecessarily alarm members and retirees.

The material on this website is provided by Beeson, Tayer & Bodine for informational purposes only and does not constitute legal advice. Readers should consult with their own legal counsel before acting on any of the information presented. Some of the articles are updated periodically, and are marked with the date of the last update. Again, readers should consult with their own legal counsel for the most current information and to obtain professional advice before acting on any of the information presented.