Despite its intended goal of improving retirement security, the Pension Protection Act of 2006 led to fewer defined benefit pension plans and inadequate coverage from defined contribution accounts, according to an issue brief released Monday by the National Institute on Retirement Security.
“Instead of strengthening retirement security, the PPA has had the opposite impact. It's acted as pension poison,” said NIRS Executive Director Diane Oakley in a statement.
Assessing PPA's impact 10 years later, Ilana Boivie, NIRS researcher and senior policy analyst with the DC Fiscal Policy Institute, found that defined benefit plans were hurt by the PPA's more stringent, market value-based plan funding rules, and the “incredibly bad timing” of the law going into effect before the financial crisis, which prompted more DB plan sponsors to freeze and terminate their plans.
According to Pension Benefit Guaranty Corp. data, the number of DB plans insured by the agency dropped to 23,344 in 2014 from 29,605 in 2005. The percentage of active participants in PBGC-covered plans dropped to 36.8% in 2013 from 45.3% in 2006.
For defined contribution plans, PPA did help increase participation by clarifying the use of automatic enrollment and giving plan sponsors several safe harbors to encourage employee participation. Yet overall participation remains low, the report said, and the savings rate does not help people adequately prepare for retirement.
Since enactment of PPA, the overall number of households with retirement plans has declined to 51% in 2013 from 55% in 2007. In addition to low automatic contribution rates, the most common investment default — target-date funds — tend to have higher fees, the report said.
The report, “10 Years After the Pension Protection Act: Effects on DB and DC Plans,” analyzed data from several sources, including the Employee Benefit Research Institute and Boston College. It is available on the NIRS' website.