Newsletter Articles

It’s that time of year again… when retirement plan sponsors need to give their plans the administrative equivalent of an annual physical exam. There are new limitations to consider as well as recurring compliance deadlines and fiduciary responsibilities. All of these matters have become a bit more complicated by the passage of the Pension Protection Act of 2006.

On August 17, President Bush signed the Pension Protection Act of 2006 (PPA) into law. The new law, heralded by many as the most important change to the rules governing retirement benefits since the passage of the Employee Retirement Income Security Act of 1974 (ERISA), aims to increase employee participation in 401(k) and other defined contribution plans by explicitly allowing for the automatic enrollment of employees. It also provides a safe harbor for plan sponsors and other fiduciaries who invest automatically enrolled participants’ contributions in a qualified default investment alternative.

On August 17, 2006, President Bush signed into law the most widespread retirement plan changes of the past five years. One goal of the Pension Protection Act of 2006 (“PPA”) is to strengthen ailing defined benefit pension plans, whose funding deficiencies and distress terminations have left the federal Pension Benefit Guaranty Corporation with a large deficit. But the Act goes much further, impacting defined contribution plans as well. What follows is an overview of the most relevant portions of the new law.

A major business trend in the American workplace is the hiring of part-time, seasonal or temporary employees (collectively referred to in this newsletter as “part-time employees”). Employers believe the advantages to using this alternative workforce include lower wages and significant savings in terms of not providing employee benefits to these individuals.

In an ideal world, we would all contribute as much money as possible to our retirement plans and allow it to grow until we were ready to retire. We could then enjoy our twilight years with comfort and security, be it traveling the world or relaxing by the pool.

The Uniformed Services Employment and Reemployment Rights Act of 1994 (“USERRA”) protects the rights of employees who leave their employment to enter military service. Among its protections are a number of rules governing contributions to and the crediting of service under an employer’s retirement plan.

A qualified retirement plan can provide many benefits for an employer and its employees. In order for the plan to run smoothly so that its usefulness can be maximized, the employer should be aware of the ongoing responsibilities related to the administration of the plan.

The sponsor of a tax-qualified retirement plan and the plan’s fiduciaries have a number of obligations once a plan is established. Many of these obligations relate to the day-to-day operation of a plan. However, plan document maintenance issues are sometimes overlooked.

In 1997, the Internal Revenue Code was amended to permit individuals to make contributions to a new type of IRA called a “Roth IRA.”

Contributions to a Roth IRA are included in an individual’s income and, unlike distributions from a “traditional” IRA, distributions from a Roth IRA are not usually taxed. In 2005, an individual may contribute up to $4,000 ($4,500 if over age 50) to a Roth IRA.

The term “safe harbor” has a multitude of meanings in conjunction with the administration of qualified retirement plans. But in recent years the term has predominantly been associated with the provisions applicable to safe harbor 401(k) plans. These plans have become extremely popular, especially among smaller employers. And when you consider the overall benefits, it’s no surprise.