Insurance Journal:
Now is the time for small business owners to bone up on a new law that makes big changes in employee retirement plans.
The Pension Protection Act of 2006, passed in August, rewrote many of the rules on pensions in an effort to aid owners and employees alike. While some changes won’t kick in for a year or two, others went into effect this month.
Keeping track is important because the law opens up new opportunities for savings and also holds potential pitfalls.
A major benefit: Business owners and key personnel, who had been limited in their own 401(k) savings, can now sock away more if the company enrolls employees automatically in its plan and contributes a required amount to each account.
Potential pitfalls include new rules that require more communication with employees. Quarterly statements are now required, for example. Until now, 401(k) statements weren’t technically required at all - though many plans did issue some form of statement to stay in line with accepted industry practice.
For a small business without a designated pension person, staying on top of the new rules can be daunting. Many big financial firms that provide plans to employers are making a push to explain the changes, but business owners shouldn’t wait for that to happen, according to 401(k) advocates.
‘Call your professionals and tell them that you’re ready when they want to talk to you,’ said Dallas Salisbury, president and chief executive of the Employee Benefit Research Institute, in Washington. ‘Say, We know we have to do something, so when you know what it is, tell us.’
The new law affects both defined-benefit plans - traditional pensions that pay out a fixed sum after retirement - and defined-contribution plans like 401(k)s. The changes to defined-benefit plans mostly involve funding requirements. Full article.
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