In 2006, Congress passed the Pension Protection Act of 2006 (PPA), a comprehensive pension reform bill. The passed the bill by a vote of 93-5 on August 3, 2006 and the House passed the bill by a vote of 279-131 on July 28, 2006. The President signed the bill into law on August 17, 2006.
The changes made by the PPA impact almost every type of pension plan and have been considered the most sweeping reform since the passage of ERISA. There is consensus that the PPA represents a balanced compromise between the positions of all interested parties. As such, the Chamber believes that the agreements and compromises reached in the PPA should be maintained. Moreover, the Chamber will work on issues of concern to our members and address technical corrections and regulations from the Treasury Department and the Department of Labor.
(1) Single-Employer Defined Benefit Funding Reform:
The PPA fundamentally changed the funding rules for single-employer benefit plans by replacing the prior regime with new funding targets, a new interest rate assumption based upon a modified yield curve formula and a new at-risk liability category.
(2) Cash Balance and Hybrid Plan Reform:
For over 15 years, cash balance and hybrid plans have been the center of controversy due to unmet expectations. To address this controversy, the PPA creates a non-discrimination standard that applies to all defined benefit plans. However, these provisions are prospective only. The bill also contains a requirement that in the future hybrid conversion plans provide participants with the sum of the benefits earned under the prior formula as of the conversion plus the benefits earned the new formula post-conversion (a so-called "A + B" requirement). This conversion requirement is effective for conversions adopted after, and taking effect after June 29, 2005.
(3) Defined Contribution Plan Reform:
The PPA contains numerous provisions relating to defined contribution plans including automatic enrollment provisions and provisions making retirement savings section of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) permanent. The Act also included Enron-related legislation that had been previously introduced, including provisions on diversification of assets, investment advice, and executive compension.
(4) Multiemployer Plan Reform:
The Act creates new provisions for underfunded multiemployer plans and separates them into two broad categories: (1) plans between 65 percent and 80 percent funded are endangered "yellow zone" plans in immediate financial danger; and (2) plans that are less than 65 percent funded are critical "red zone" plans in need of reorganization. The bill requires Trustees of plans and also provides tools (such as prohibiting benefit increases, allowing for increased contributions, and reducing supplemental accrued benefits) to help the Trustees meet their funding goals.