5 Facts About the Pension Protection Act – Master of Accounting Degrees

The Pension Protection Act of 2006 is an act that President George W. Bush signed into law in 2006 to change the way that companies help workers prepare for the future. Prior to the act becoming part of legislature, the government did little to protect workers. Companies had the right to contribute as little or as much as they wanted. This act now helps workers get more help for the future and penalizes companies that fail to follow the law.

Penalties for Employers

One thing you should know about the Pension Protection Act is that it penalizes companies that fail to follow laws relating to pensions and retirement planning. If a company does not provide the minimum amount of support, the act requires that they pay larger premiums. If an employer consistently violates the law, the company may lose its right to offer pension plans. According to the United States Department of Labor, companies must also increase the amount that employees can contribute to their own pension plans or risk high fines.

More Control

Many pension plans include some element of investing. Companies may hire investment specialists and give those specialists control over what they invest in and how they decide which investments to make. The idea is that those investments will make money and increase the amount of money in that fund, which will then support more employees in their retirement years. This act now gives workers more control over what investments are part of their portfolios. While it may not give them complete control or the freedom to invest in multiple companies, it does let them make some decisions and lets them see where their money goes.

Higher Limits

When you file your taxes, you must tell the IRS about all money you made in the previous year. You can deduct a certain amount that you contributed to your pension plan, but the government limits the amount you can deduct. The Pension Protection Act of 2006 increases the amount you can claim on your taxes, which can help you save more money and get more back in the coming year.

No Penalties

Some employers offer pension plans that automatically take out a portion of your income to add to your pension plan. This lets you invest in your future and get more money during your retirement years with each paycheck you receive. If you change your mind about investing in a pension plan, you can request that your employer give you back any money that it took. The act now gives you up to 90 days to change your mind and request a refund. It also ensures that you do not pay any tax penalties for the money you get back.

Qualified Default Investment Alternatives

Qualified Default Investment Alternatives refer to investments that your employers must make on your behalf. Employers once had the right to invest the contributions of employees in any way they wanted. If the investment lost money, the employer was under no right to inform employees. The Pension Protection Act now requires that employers use these alternatives as a way of protecting employees who sign up for automatic programs. This protects the money they contribute and saves them from unexpected losses.

Having a pension plan is a smart way to prepare for your future. The money that plan makes off interest rates and investments can cover the costs you face after retiring. Before you sign up for any of the programs available through your employer, you should look over the Pension Protection Act of 2006 and make sure that you understand all your rights.