Summary
What is not mentioned in the article is that underfunded companies from a pension related retirment benefit perspective must now have their plans funded completely within seven years.
Individuals may now be able to boost their pretax savings into IRAs
Employers that have defined contribution plans must now automatically enroll workers into their Profit Sharing 401(k) plans. Employees will also be able to contribute more to savings in this manner.
This all bodes well for mutual fund companies as regulations are now in place to encourage retirement plan savings and the companies necessary to manage income on a mutual fund basis that these plans will have will increase in assets under management.
As the trend continues in big industry we will see more and more companies converting from defined benefit to defined contribution plans of the 401k nature to help push the accountability of savings for retirment back to the individual.
Analysis
President Bush on Thursday put his signature on the pension reform act, a measure he described as the most sweeping overhaul of the nation's pension laws in more than 30 years.
The pension law is intended to strengthen traditional defined-benefit plans, particularly the 30,000 plans that are currently underfunded by an estimated $450 billion. Those plans must reach 100% funding, up from the current 90% requirement, in seven years.
The most underfunded companies must contribute at a faster rate and face restrictions, including a ban on increasing benefits.
As part of a plan to boost savings, the pension legislation allows workers to contribute more to personal retirement savings accounts, such as IRAs and 401(k)s, in future years. It also allows employers to automatically enroll workers in 401(k) accounts.
