After months of political debate, last month the President signed the Pension Protection Act of 2006 (PPA). It's 907 pages of new processes, new rules, and changes for employers to deal with; a copy of the PPA is available at http://www.aspa.org/government/gacpdf/HWC_373_xml.pdf. Some of the more notable changes include:
- "Automatic Enrollment." In most 401(k) plans, if the employee does not submit enrollment forms (and many do not) they do not participate. To pass IRS required participation tests, employers wanted to create "opt-out" plans: unless the employee turn in a form saying they would not particate, they are in the plan. The IRS approved such arrangements almost 10 years ago. However, many states (including Oregon) have state wage laws that prohibit an employer from taking payroll deductions without written employee consent. The PPA explicitly preempts such statutes, at least to the extent they would otherwise restrict automatic enrollment in a 401(k) plan.
- Investment Advice. The PPA provides some additional ways for plans to provide investment advice to their participants without engaging in a prohibited transaction, or a violation of ERISA's strict fidcuairy rules. The first is to utilize investment advisors that charge flat fees that do not vary based upon transactions. The second is to use certain types of computer-modeling to develop a portfolio for a particular participant.
- Liberalized Plan Asset Rules. ERISA has very draconian rules for anyone acting as a plan fiduciary. A fiduciary includes anyone who has control of "plan assets." If an entity has at least 25% of its equity controlled by IRAs or qualified plans, the entity's assets become plan assets. The PPA carves out exceptions for certain types of plan sponsors (government, church or foreign plans) and reduces the likelihood that other types of plans still subject to the rules will become fiduciaries.
The PPA has literally dozens of other changes that affect nearly all types of retirement plans. Most provisions are either effective immediately or for the 2007 plan year, so employers have very little time to get up to speed on the changes.