401(k) Provision Not Included in Pension Protection Act

September 2006

The Pension Protection Act of 2006, which was signed into law Aug. 17, does not include a provision to allow for 401(k) plans for public sector employees (beyond those currently grandfathered). The provision was strongly opposed by public sector groups and it carried with it a significant revenue impact.

The provision was initially proposed by Sen. Craig Thomas (R-WY), a strong supporter of Employee Retirement Savings Accounts (ERSA), which were included in the Bush Administration’s early budget proposals. The ERSA would have closed existing employer plans and created a single new one. Those plans were opposed in the public sector because public employers do not want to lose certain favorable 457 plan provisions, such as an exemption from the 10 percent penalty for early withdrawal.