In recent years, corporate fall-outs exposed the vulnerability many workers face by putting all their retirement nest eggs in one basket.
Corporate accounting scandals and bankruptcy-plagued industries, including airlines and steel mills, served as a wake-up call for policymakers to beef up the nation’s pension system to protect the workforce and shield the taxpaying public from an expensive bail out.
The Republican-led Congress delivered U.S. workers a victory by updating the nation’s pension laws to strengthen retirement benefits and significantly expand access to greater savings opportunities.
In the first major overhaul since Congress first enacted pension- funding laws in 1974, the improvements tighten funding rules for employer-sponsored defined benefit plans that will require 100 percent funding within seven years. Current law allowed companies to reserve 90 percent of their pension obligations.
The U.S. Labor Department estimates a significant gap – north of $450 billion -- exists between promised pension benefits and companies which stand behind those commitments with sufficient assets.
Action taken by Congress in August aims to help employers make good on these pension promises.
As chairman of the Senate Finance Committee, I worked to put traditional employer-sponsored pensions on stronger footing so that long-time workers who are counting on traditional, defined benefit plans won’t get shortchanged in retirement.
Unlike previous generations, today’s workforce is more likely to have a handful of different employers. That means workers also need the ability to build retirement assets that can move with them from job to job.
Pension policy needs to keep pace with the 21st century workplace. In Washington, I led the charge to make permanent the generous retirement savings vehicles I helped create in the landmark 2001 tax laws and engineered new protections and incentives for workers to sock away savings for their retirement.
The Pension Protection Act of 2006
will:
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increase annual tax-advantaged contribution limits for pension and individual retirement accounts (IRA);
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improve vesting opportunities;
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make retirement plans portable for good;
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lock in “catch-up” contributions that allow people age 50 and older to make additional $1,000 contributions to IRAs each year and up to $5,000 contributions each year to 401(k) plans;
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give leeway for financial companies which manage retirement accounts to provide investing advice to investor-employees;
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help prevent employers from defaulting on defined benefit pension programs that long-time employees are counting on for their retirement security; and,
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index income limits to inflation and make permanent the $2,000 saver’s credit for low- and middle-income workers.
Underfunded pension plans put the retirement security of too many Americans at risk. And to make matters worse, taxpayers also are vulnerable if companies dump their plans and shift the burden to an already over-burdened Pension Benefit Guaranty Corporation. This federal agency protects pensioners if their employers’ plan folds; however, it is running a $22.8 billion deficit this year alone.
As a policymaker, I recognize pension savings are key to a better quality of life in retirement. That’s why I work to give all workers better tools to equip their retirement nest eggs with enough savings that will help maintain their standard of living in retirement.
Other pro-worker reforms I worked to include are new:
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diversification rights for company stock in pension plans;
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disclosure requirements for suspension black-outs;
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disclosure through periodic benefit statements and retirement savings information;
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incentives that encourage automatic enrollment in defined contribution retirement plans; and,
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payment options to afford
long-term care insurance.
The updated pension laws ought to help improve the retirement benefits partnership between employers and their workers. It targets funding shortfalls and provides better savings opportunities for employees to prepare for a comfortable retirement out of the workforce during their years in the workforce.