The Pension Protection Act of 2006 (), 120 Stat. 780, was signed into law by

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George W. Bush George Walker Bush (born July 6, 1946) is an American politician who served as the 43rd president of the United States from 2001 to 2009. A member of the Republican Party, Bush family, and son of the 41st president George H. W. Bush, he ...

on August 17, 2006.

Pension reform

This legislation requires companies who have underfunded their

pension plan A pension (, from Latin ''pensiō'', "payment") is a fund into which a sum of money is added during an employee's employment years and from which payments are drawn to support the person's retirement from work in the form of periodic payments ...

s to pay higher

premium Premium may refer to: Marketing * Premium (marketing), a promotional item that can be received for a small fee when redeeming proofs of purchase that come with or on retail products * Premium segment, high-price brands or services in marketing, ...

s to the Pension Benefit Guaranty Corporation (PBGC) and extends the requirement of providing extra funding to the pension systems of companies that terminate their pension plans. It also requires companies to analyze their pension plans' obligations more accurately, closes

loophole A loophole is an ambiguity or inadequacy in a system, such as a law or security, which can be used to circumvent or otherwise avoid the purpose, implied or explicitly stated, of the system. Originally, the word meant an arrowslit, a narrow verti ...

s that previously allowed some companies to underfund their plans by skipping payments, and raises the

cap A cap is a flat headgear, usually with a visor. Caps have crowns that fit very close to the head. They made their first appearance as early as 3200 BC. Caps typically have a visor, or no brim at all. They are popular in casual and informal se ...

on the amount employers are allowed to invest in their own plans. This will allow employers to deduct more money using the pension

tax shield A tax shield is the reduction in income taxes that results from taking an allowable deduction from taxable income. For example, because interest on debt is a tax-deductible expense, taking on debt creates a tax shield. Since a tax shield is a way ...

in times of high profits. It requires actuaries to use the equivalent of the projected accrued benefit cost method for determining annual normal cost. Other elements: * Provides statutory authority for employers to enroll workers in

defined contribution plan A defined contribution (DC) plan is a type of retirement plan in which the employer, employee or both make contributions on a regular basis. Individual accounts are set up for participants and benefits are based on the amounts credited to these a ...

s automatically; formerly, the authority came from DoL rulemaking * Expands disclosure that workers have about the performance of their pensions * Removes the

conflict of interest A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates to situations i ...

fiduciary A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties (person or group of persons). Typically, a fiduciary prudently takes care of money or other assets for another person. One party, for exampl ...

liability from giving self-interested investment advice for retirement accounts * Gives workers greater control over how their accounts are invested * Extends the 2001 tax act's contribution limits for

IRA Ira or IRA may refer to: *Ira (name), a Hebrew, Sanskrit, Russian or Finnish language personal name *Ira (surname), a rare Estonian and some other language family name *Iran, UNDP code IRA Law *Indian Reorganization Act of 1934, US, on status of ...

s and

401(k) In the United States, a 401(k) plan is an employer-sponsored, defined-contribution, personal pension (savings) account, as defined in subsection 401(k) of the U.S. Internal Revenue Code. Periodical employee contributions come directly out of their ...

s. * Allows automatic contributions to be returned to employees without tax penalties, if employee opts out within 90 days * Established safe harbor investments, also known as Qualified Default Investment Alternatives, to protect employers from liability of losses suffered by automatically enrolled employees

Charitable organization reform

The Pension Protection Act also reformed several types of tax-exempt charitable organizations including donor-advised funds,

private foundations A private foundation is a tax-exempt organization not relying on broad public support and generally claiming to serve humanitarian purposes. The Bill & Melinda Gates Foundation is the largest private foundation in the U.S. with over $38 billion i ...

, and supporting organizations.

Supporting organizations

The Pension Protection Act cracks down on supporting organizations, particularly Type III supporting organizations. The Act applies further regulations and penalties that takes away several of the privileges that supporting organizations have over private foundations, such as applying private foundation law of excess benefit transactions, excess business holding rules, and pay out requirements.

Tax savings

Public Safety Officers

One tax benefit allowed under the pension protection act is that qualified retired "Public Safety Officers" may exclude from income the cost of health insurance. The exclusion is shown on the tax return as simply subtracting the exclusion from the figure shown on the 1099-R form, and placing the smaller figure on the pension income line on the 1040. The text literal "PSO" must be written on the dotted line to the left of the figure. IRS Pub 575 has more details. Public safety officers include police, firefighters, emergency medical technicians, and many types of federal and state employees dealing with criminals.

Early withdrawal penalty exceptions

The PPA tells the Secretary of Treasury to provide further exceptions to the 10% penalty on withdrawing from a retirement account before reaching proper retirement age. In particular, some penalty exceptions are narrowly defined to only covering IRA accounts, excluding 401(k) and other plans.

Inherited IRAs

The PPA provides a new mechanism for an IRA to be passed on to a non-spouse beneficiary. Transferring an IRA account this way can allow better control over when to withdraw (and pay taxes on) the IRA funds. An IRA account can only be passed on once, and it is not directly transferred into the beneficiary's account. Instead, a special IRA account with the heading " ''Deceased Name'' For the Benefit of ''Beneficiary Name'' " is made to keep the transfer.

Pension Benefit Guaranty Corporation

The Pension Benefit Guaranty Corporation (PBGC) is a federal corporation created under the

Employee Retirement Income Security Act of 1974 The Employee Retirement Income Security Act of 1974 (ERISA) (, codified in part at ) is a U.S. federal tax and labor law that establishes minimum standards for pension plans in private industry. It contains rules on the federal income tax eff ...

. It currently guarantees payment of basic pension benefits earned by 44 million American workers and retirees participating in over 29,000 private-sector defined benefit pension plans. The agency receives no funds from general tax revenues. Operations are financed largely by insurance premiums paid by companies that sponsor pension plans and by investment returns. The 1985 cas
National Foundation, Inc
(no
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v. United States, was instrumental in defining the standards used for Donor Advised Funds. Some of the standards that were included in the 2006 act include: * Legal definition of a donor-advised fund. * A list of prohibited payments to donors and advisers to donor-advised fund. * New rules about what grants can be made from donor-advised funds. * The documentation required for all contributions to donor-advised funds.

Amendments

On December 23, 2008, P.L. 110-458 (H.R. 7327), the Worker, Retiree, and Employer Recovery Act of 2008, was signed into law by the President. The Act makes technical corrections related to the PPA of 2006. The Cooperative and Small Employer Charity Pension Flexibility Act (S. 1302; 113th Congress) is a proposed amendment that would make permanent an existing exemption from the Pension Protection Act of 2006 for a few small groups. Approximately 33 different plans would be affected. The bill's sponsors, such as Senator

Pat Roberts Charles Patrick Roberts (born April 20, 1936) is a retired American politician and journalist who served as a United States senator from Kansas from 1997 to 2021. A member of the Republican Party, Roberts served 8 terms in the U.S. House of Re ...

, indicated that the exemption from the Pension Protection Act (PPA) that would be granted under this bill was needed because "the PPA was meant to protect employee pensions, but in the case of rural cooperatives and charities, it jeopardizes plans for employees." Senator Harkin criticized the PPA for forcing charity organizations to divert funds away from the services they provide. S. 1302 passed the Senate on January 28, 2014.

Notes

External links

* * *{{cite web , year = 2006 , url = https://georgewbush-whitehouse.archives.gov/news/releases/2006/08/20060817-7.html , title = The President's Statement on H.R. 4, the "Pension Protection Act of 2006" , publisher = White House, access-date = 2006-10-21
WashingtonWatch.com page on P.L. 109-280, The Pension Protection Act of 2006
* ttp://www.govtrack.us/congress/bill.xpd?bill=h110-7327 Govtrack.us, H.R. 7327: Worker, Retiree, and Employer Recovery Act of 2008br>Donor Advised Funds Sheet ExplanationNational Foundation, Inc. v. The United States of America
Acts of the 109th United States Congress United States federal labor legislation United States federal legislation articles without infoboxes Pension Benefit Guaranty Corporation