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Fact Sheet: The Pension Protection Act of 2006-Ensuring Greater Retirement Security for American Workers

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08-17-2006

White House Press Release

Today, President Bush Signed The Pension Protection Act Of 2006, The Most Sweeping Reform Of America's Pension Laws In Over 30 Years. Last year, President Bush asked Congress to strengthen protections for the pensions American workers rely on, and Congress responded by passing this bipartisan bill.

Every American Has An Interest In Fixing The Pension System. The Federal government has created an insurance system for businesses offering private pensions, and the insurance is funded by premiums collected from these employers. When some businesses fail to fund their pension plans and are unable to meet obligations to their employees, it puts a strain on the entire pension system. If there is not enough money in the system to cover all the extra costs, American taxpayers could be called on to make up the shortfall.

The Pension Protection Act Of 2006 Legislation Improves The Pension System And Expands Opportunities To Build Retirement Nest Eggs

The Pension Protection Act Strengthens The Federal Pension Insurance System.

The legislation:

• Requires companies that under-fund their pension plans to pay additional premiums;
• Extends a requirement that companies that terminate their pensions provide extra funding for the pension insurance system;
• Requires that companies measure the obligations of their pension plans more accurately;
• Closes loopholes that allow under-funded plans to skip pension payments;
• Raises caps on the amount that employers can put into their pension plans, so they can add more money during good times and build a cushion that can keep their pensions solvent in lean times; and
• Prevents companies with under-funded pension plans from digging the hole deeper by promising extra benefits to their workers without paying for those promises up front.

President Bush Has Sent A Clear Message To Businesses Across America That They Must Keep Their Promises To Workers. Businesses that offer a private pension plan to their employees have a duty to set aside enough money now, so their workers get what they have been promised when they retire.

The Pension Protection Act Also Contains Provisions To Help American Workers Who Save For Retirement Through Defined Contribution Plans, Like IRAs And 401(k)s. Defined contribution plans are helping Americans build a society of ownership and financial independence, and this legislation makes it easier for workers to participate in these plans.

The legislation:

Removes barriers that prevent companies from automatically enrolling their employees in defined contribution plans;

• Ensures that workers have more information about the performance of their accounts;
• Provides greater access to professional advice about investing for retirement;
• Gives workers greater control over how their accounts are invested; and
• Makes permanent the higher contribution limits for IRAs and 401(k)s that were passed in 2001, enabling more workers to build larger retirement nest eggs.

To Ensure A More Secure Retirement For All Americans, We Must Also Prepare For The Impact Of The Baby Boom Generation's Retirement On Entitlement Programs Like Social Security And Medicare. Entitlement programs are projected to grow faster than the economy, faster than the population, and faster than the rate of inflation. If we fail to act, Social Security, Medicare, and Medicaid will be almost 60 percent of the entire Federal budget in the year 2030. President Bush continues to call on Congress to meet its duty to reform these programs so we can ensure a secure retirement for all Americans.