Just like Sergio Leone’s classic 1966 movie, 2006 will indeed be memorable.
And so with apologies to Mr. Leone and Clint Eastwood, here are my 2006 choices for the Good, the Bad, and the Ugly in Pensionland:
- The Good: The passage of the Pension Protection Act of 2006 (PPA). The new law makes significant changes to practically every retirement plan in which approximately 44 million people are participants. The 900 page bill affects all types of retirement plans including defined benefit plans, profit sharing and 401(k) plans, cash balance plans, and employee stock ownership plans (ESOPs). Most of the changes are effective in 2007 and 2008 but some are retroactive or delayed. The PPA significantly enhances 401(k) plans – now the retirement plan of choice by corporate America.
- The Bad: The decline of the defined benefit plan system. While defined benefit pension plans were on the rocks prior to 2006, there was a “perfect storm” this year. A combination of new accounting regulations, rising interest rates, uncertainty in the financial markets and escalating premiums to the Pension Benefit Guaranty Corporation is causing an acceleration of defined benefit pension plans being terminated and frozen. Will 401(k) plans fill the void?
- The Ugly: the increasing number of scams and outright thefts from retirement plans. Sizeable account balances and the Boomers starting to retire have become targets. While the numbers are relatively small, they can have a profound impact on plan participants and retirees. The regulatory agencies – the National Association of Security Dealers, the New York Stock Exchange, and the Department of Labor – are ramping up their enforcement activities to deal with this growing problem.
That’s it. For 2006, it’s a wrap.