Pension Protection Act of 2006 Brings New Opportunities, Burdens
NASHVILLE, Tenn. -- The Pension Protection Act of 2006 has created new opportunities and responsibilities for employers, according to some CUNA Mutual financial experts.
CUNA Mutual's Scott Knapp, vice president, Employee Benefit Markets, and Sharon Severson, director, Pension Client Services, offered their analysis on the Pension Protection Act's effect on credit unions and how credit unions can capitalize on the new law.
"This is a retirement savings crisis, and it's occurring at a time when aging baby boomers will soon be relying on whatever savings they've accumulated," said Knapp.
The PPA represents the most significant change in the way retirement plans are provided to employees since the adoption of ERISA in 1972. The Act offers more options, but it can make adopting a pension plan more complicated.
"In the post-PPA environment, sponsors have to ask, 'Do we want to provide a retirement plan?' If our answer is yes, they then have to ask, 'What kind of plan do we want to provide? What are our goals? Will we provide care for our employees, or empower them to care for themselves?' A starting point for sponsors should be a deep self-analysis of what type of employer they are and want to be," Knapp said.
In detailing specific changes brought about by the PPA, Severson said employers now face more decisions.
"Sponsors can now automatically enroll employees into retirement savings plans, such as a 401(k), take money out of their paychecks and regularly increase their deferral percentages. Employers also choose the investments into which employee money will be directed. For employees, the old approach of 'opt in' can become 'opt out' with the new law's blessing," she said.
Severson offered the following recommendations for credit unions in this new era of retirement planning:
-When developing a participant philosophy and strategy, adopt a Participant Policy Statement
-Identify participant-focused, outcome-based goals and evaluation metrics
-Match investments with your strategy
-Estimate and budget for additional costs associated with automatic features.