President Bush signed a major revision of pension law on August 17, 2006, that is aimed at shoring up private pension plans. The new law requires employers to fully fund their pension plans over the next seven years. Currently, private pension plans are estimated to be underfunded by more than $450 billion. The law also encourages 401(k) plans by allowing employers to automatically enroll employees in these plans.
In addition, the law includes the following provisions:
- The higher 401(k) contribution limits passed in 2001 are now permanent. You can contribute $4,000 a year or $5,000 a year if you are over age 50.
- Companies must give their employees more information about their pensions.
- Anyone who inherits a workplace retirement account may roll the account into an IRA without paying taxes. Previously, only spouses could roll over an account.
- Airlines have 10 years to fully fund their pension plans, 17 years if the airline is in bankruptcy proceedings.
Critics of the law worry that the provisions encouraging 401(k)s will mean employers will stop offering traditional pension plans that provide a reliable retirement income stream for employees.
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