Companies still unprepared for Pension Protection Act

Source: Exec Digital USA

Date :8/17/2007 8:17:01 AM

Businesses of all sizes will feel a greater impact in ’08 according to David Gensler, president of Madison Pension Services, Inc.

“Whether firms offer defined benefit plans or 401ks,” he says, “some businesses could be in for a nasty surprise.”

Companies with defined-benefit plans face mandated new rules starting January 1. “Within accepted norms,” Gensler says, “there was leeway in the actuarial assumptions used to determine annual costs for funding a defined benefit plan.”

In ’08 that changes with government determined assumptions used to calculate obligations for such plans. Companies with under funded defined benefit plans will be required to amortize this shortfall over seven years. Gensler says, “Businesses need to build these costs into their planning now.”

Businesses that sponsor 401ks are now at higher risk from employee and/or class action lawsuits due to the government’s broader definition of fiduciary responsibility. Executives involved in the process of setting up a company’s plan can now be held personally responsible for negligence. According to Gensler, “When baby boomers discover their investment choices haven’t yielded the income they had expected at retirement, joining a class action suit against their company becomes an easy choice.”

Several Fortune 1000 companies are already feeling the affects with close to 100,000 employees already involved in lawsuits. ”Having a transparent and solid process,” Gensler says, “has become more important than having the best funds.”

Gensler believes that companies with 401k plans should have a clear investment policy statement detailing how funds are chosen. It should address what happens when funds fail to meet that criterion. He also thinks that quarterly due diligence reports benchmarking funds to peer groups is a sound practice. “Every 3-5 years,” Gensler adds, “companies should conduct an independent provider search, to ensure that they are providing competitive options.”

The Pension Protection Act of 2006 was signed by President Bush on August 17, 2006.