The Summer of Our Discontent: PPA Anniversary Hits Unimagined Retirement Landscape
Four summers ago, Congress passed a landmark piece of legislation that sought to make sweeping changes to the American retirement system.
When then-President Bush signed the Pension Protection Act (PPA) into law, it outlined more than 900 pages of bold changes to employer-sponsored retirement plan options in both the DB and DC worlds, as well as nonqualified plans. From allowing plan sponsors to auto-enroll employees in DC plans to defining “at risk” funding levels for DB plans, the PPA felt revolutionary. For those of us who clearly remember August 2006, it seemed like the dawn of a new era. There was a sense among those who worked to shape the legislation that this was historic and the start of something big.
At the time, I was working with the Business Roundtable’s Pension Coalition, a group of employers, service providers and trade associations working to advance retirement security through voluntary employer-sponsored plans. It was an impressive coming together of blue-chip employers, including Dow Chemical, The DuPont Company, Ford Motor Company, General Motors, IBM, International Paper, John Deere, Kodak and Xerox, as well as industry-leading partners such as the American Benefits Council, The ERISA Industry Committee, Financial Executives International, the National Association of Manufacturers and the U.S. Chamber of Commerce. These Pension Coalition members lobbied members of Congress. They wrote letters. They gave media interviews. They were tireless, and they did not agree on everything, nor did they get everything they wanted in the final legislation. Still, there was this sense of the greater good. When all was said and done with the PPA, the feeling was that there was more right than wrong.
Over the next two years, there would be bumps in the road. Not surprisingly, there were some who said the PPA did not go far enough. An even more common criticism was that it didn’t go fast enough. Plan sponsors were slow to adopt its provisions and participants continued to fall behind in their retirement savings as the silver tsunami of baby boomers hurdled ever closer to retiring in droves. Or so we thought. And then came the financial crisis of 2008. The world changed, and the concept of retirement in America changed in a way that the PPA could never have foreseen.
As Pension Coalition members gave up their summer vacations in 2006 to work around the clock to make the PPA the best legislation it could possibly be, the fundamental belief in the existing retirement system in America remained constant. Employers wanted to continue sponsoring DB and DC plans and were firmly committed to enhancing retirement security for their participants, but they did so in an economic and legal context and wanted the legislation to reflect an understanding of their balance sheet realities. While the PPA cleared that hurdle in 2006, none of us could have predicted the fragility of Wall Street powerhouses, insurance firms, banks and the entire U.S. auto industry just two short years later. By the end of 2008, baby boomers in DB plans indicated they were postponing retirement while total assets in DC plans had declined by over $1 trillion, and target-date funds had lost nearly 30 percent of their value. The result was a crisis of confidence, and the PPA went from seeming historic to prehistoric.