Fall is in the air and with the season comes the need to review some year-end deadline items. You may have heard about some new legislation entitled, The Pension Protection Act of 2006. Here are some items which because law on August 17, 2006, and why this fall you should incorporate these changes in your review.
Pension Protection Act of 2006:
While you may have heard of it, and believe you understand it to only pertain to those large corporations with failing pension plans, think again. Here are a few of the points (from the 900 pages of the Act) that likely pertain to you or your business:
- Economic Growth and Tax Relief Reconciliation Act (EGTRRA) permanence:
- Roth 401K provision - now permanent. If you don't have a ROTH provision in your plan, now is the time. I foresee this provision to be the biggest change to 401K plans in a decade.
- Increased Retirement and Savings Incentives - The Act makes permanent the expanded limits ($5,000), expanded 401(k) pre-tax contribution maximums ($15,000).
- 401(k) Automatic Enrollment - (discussed in my last issue), with this plan type, an employer is allowed to automatically enroll eligible employees unless an employee affirmatively elects not to participate, thereby promoting employee participation. In addition, the Ace preempts state wage garnishment laws to the extent they interfere with an employer's ability to offer automatic enrollment. If you haven't thought about auto-enrollment before, now is the time.
Fall To-do List:
Given some of the new rules above, and year end deadlines, here's my list of to-dos:
- Most 401k plans are effective at the beginning of a calendar year and any changes need to be incorporated prior to the end of the year.
- Review your 401k plan for: performance, provider service and plan features (i.e. ROTH provision). If you are not happy, contact me.
- Project your personal tax liability for 2006. You can still modify your current contributions to the 401k plan and save some money in taxes.
- Consider additions to your college savings plan. 2006 contribution deadline ends at the end of the year.
- ROTH conversion must be done by the end of the year.
