New Pensions Law Highlights

From AP, major changes are coming to how employers and employees can contribute to their pension funds. These changes not only cover such issues as employer contributions and what employers can do to the pension systems, but also employee’s rights and responsibilities under the new law. The following are highlights of the new Pensions Law:

• Requires employers with defined-benefit plans to make sufficient contributions to meet a 100% funding target and erase funding shortfalls over seven years.
• Forces employers with “at-risk” plans to make accelerated contributions. Under one scenario, a plan is deemed at-risk if it falls below 70% funded status using assumptions that employees take the most expensive benefits and retire at the earliest possible date.
• Prohibits employers and unions from increasing benefits if a plan is less than 80% funded, unless the benefits are paid for immediately.
• Restricts the use of deferred executive compensation arrangements for employers with severely underfunded pension plans.
• Gives bankrupt airlines with a “hard freeze” on their plans an additional 10 years to meet funding obligations. Airlines with a “soft freeze” on their plans would get an extra three years.
• Establishes a simple age discrimination standard for all defined-benefit plans.
• Bars companies from forcing employees to invest any of their own retirement savings contributions in company stock.
• Permits qualified financial companies to offer face-to-face investment advice to help employees manage 401(k) and other retirement options.
• Makes permanent provisions in a 2001 tax cut law that raised annual contribution limits for IRAs.
• Gives taxpayers the option of depositing a portion of their federal tax refund directly into an IRA.
• Lets employers offer automatic enrollment in employer-sponsored defined contribution pension plans such as 401(k)s.
• Allows employers with defined benefit pension plans that are more than 120% funded to use assets to fund retiree health benefits.

What do you think of these changes if you are on a pension plan?