SURVEY SAYS: Thoughts About the PPA

Though it’s called the Pension Protection Act, it included provisions about both defined benefit (DB) and defined contribution (DC) plans intended to improve retirement security for participants in all types of plans.

Last week, I asked NewsDash readers, “Do you think the PPA has succeeded in improving the retirement security picture, what provisions helped the most, and where did the PPA fall short?”

Twenty-eight percent of responding readers work in a plan sponsor role, 28% are advisers/consultants, and 44% are TPAs/recordkeepers/investment managers.

Most respondents (55.6%) had mixed feelings about whether, overall, the PPA has improved the retirement security of American workers; 18.5% said it has, and 25.9% said it has not.

Asked what provisions of the PPA and related regulations have helped improve retirement security the most, responses were:

• Automatic enrollment safe harbor – 59.3%;
• Qualified default investment alternatives – 48.1%;
• Eliminating sunset for catch-up contributions – 48.1%;
• Making Roth contributions a permanent option – 51.8%;
• Diversification of company stock – 7.4%;
• Vesting requirements for employer contributions – 14.8%;
• ‘Blessing’ of cash balance plan design – 14.8%;
• New funding rules for DB plans – 18.5%;
• New funding rules for multiemployer plans – 7.4%;
• ‘Computer model’ advice rules – 3,7%; and
• None – 11.1%.

Asked which provisions of the PPA and related regulations missed the mark, responses were:

• Automatic enrollment safe harbor – 17.4%;
• Qualified default investment alternatives – 26.1%;
• Eliminating sunset for catch-up contributions – 4.3%;
• Making Roth contributions a permanent option – 8.7%;
• Diversification of company stock – 4.3%;
• Vesting requirements for employer contributions – 4.3%;
• ‘Blessing’ of cash balance plan design – 13%;
• New funding rules for DB plans – 43.5%;
• New funding rules for multiemployer plans – 17.4%;
• ‘Computer model’ advice rules – 26.1%; and
• None – 13%.

Readers who left comments about the PPA’s impact on retirement security were mostly negative about provisions concerning defined benefit plans and mostly positive about provisions concerning defined contribution plans. Some left comments about how the legislation missed the mark and a couple pointed out that retirement plan participants are the only ones now that can improve their retirement security. Editor’s Choice goes to the reader who said: “PPA simply increased regulations and law with which to comply. Retirement security for the average retirement plan participant has not changed. Until one’s ability to save changes and the discipline, either incentivized or not, to stay the course changes, how does increased regulation help?”

A big thank you to everyone who participated in our survey!

Verbatim 

We were using a GIC for our default provision. They are not eligible under the current list of qualified default options. The current default list has more risk built in than the old options.

The fuse was lit for exploding PBGC costs

PPA was generally a win for 401(k) plan participants, and a lose for DB plans. But even for 401(k) plans, most plan sponsors have not taken full advantage of the PPA provisions that could really improve outcomes for participants.

Too much volatility in the DB plan funding rules - encourages plan sponsors to freeze and/or terminate these plans, which actually serves to reduce retirement security for American workers

Legislation can only go so far. Ultimately, it's the individual who must take action.

Each new law is going to be the great fix. Each usually just makes more reporting work.

If the single employer plan funding rules were supposed to have plans fully funded in seven years, why is it that eight years after they were effective, plans are still not funded?

How's this for protecting pensions: The Pension "Protection" Act replaced DB funding methods that were mathematically and theoretically sound with a (required) method that completely fails to take into account any benefits that accrue after the current year. "Hey, as long as the plans are 80% funded this year, pensions are secure!" Not. Even. Close.

While auto enrollment was a plus, it gives employers the feeling everything is great but most participants stay at the default rate. Without auto escalation, automatic enrollment is worthless.

The most epic failure of PPA's DB funding rules was not in the original language, but in repeated iterations of funding relief that roll back mark-to-market measures dictated in PPA. What is most troubling is that Congress is doing this primarily to increase tax revenue, without regard for its damage to participants’ retirement security.

Roth conversions and their attendant tracking requirements are way too convoluted to be correctly accounted for. Loan Defaults/non-qualified distributions from Roth funds with their split "basis" for 1099 reporting are the hidden monster under the bed!

The PPA accelerated the trend of freezing pension plans because the mandatory funding requirements, good in principle, were horrible in practice. Employees have less secure retirements now since they have only DC plans. But the PPA made pension plan financing a bet-the-company event.

Now that auto enrollment has become more common, it's time to up the contribution rate limits within the safe harbor.

I've been around since velour shirts, pastels for men and coordinated running suits were the fashion trend (should probably bag them up for donation). In that time, there's been about 53 pieces of legislation, some even tactfully hidden in other bills, affecting retirement plans. In reverence then, it may be safe to say I've probably forgotten more than some currently claim to know. Nevertheless, for nearly each piece [regulation] the truism endured; no good deed goes unpunished. But, to the question, PPA primarily made permanent EGTRRA descendant of and related to kissing cousins TEFRA, TRA, REA, RPA, SBA, MAP and others in the family tree. As I see the sun setting on my tenure, I have to say hail n' hell to legislation for a gainful yet (employer) costly career and being the main contributor to the death of the DB plan.

It would be more appropriate to call it the Pension Destruction Act, though perhaps it just hurried along the inevitable. Major help for DC designs, however.

PPA simply increased regulations and law with which to comply. Retirement security for the average retirement plan participant has not changed. Until one's ability to save changes and the discipline, either incentivized or not, to stay the course changes, how does increased regulation help?