Deciphering the New Pension Protection Act

It is no secret that the focus of retirement plan strategies has been steadily shifting away from traditional defined-benefit pension plans to 401(k) plans. However, there is a growing concern that 401(k) plans in their current form are unlikely to leave today's workers with the level of income they need to retire. The 2006 Retirement Confidence Survey sponsored by the Washington, D.C.-based Employee Benefits Research Institute and Mathew Greenwald & Associates Inc. found that 68 percent of current employees express confidence in their retirement prospects, yet
that same proportion has accumulated less than $50,000 for retirement.

As the true retirement picture comes into focus for plan sponsors and legislators, companies' pension plan strategies are undergoing a subtle but significant shift. The newly enacted Pension Protection Act of 2006 (PPA) not only lays the groundwork for turnkey 401(k) participation, but it also effectively brings back cash-balance plans from the dead as a potential employer-funded companion to 401(k) plans.

Many observers say the law is also another nail in the coffin of defined-benefit pension offerings. "This law will make defined- contribution plans, including 401(k) plans, the preferred retirement plan for employers," predicts Sheldon Gamzon, principal with PricewaterhouseCoopers HR Services in New York City.