MFS NAPA Topic Spotlight Fall

NAPA

Topic Spotlight HOW THE PENSION PROTECTION ACT RESHAPED RETIREMENT PLANS

NAPA Topic Spotlight Sponsored by

Happy Birthday, PPA: How the Pension Protection Act Reshaped Retirement Plans While there’s still work to be done, its enduring legacy is the help it provides in ensuring workers make the most of their retirement planning and saving options.

BY JOHN SULLIVAN HAPPY BIRTHDAY, PPA! The Pension Protection Act of 2006 is all grown up.

On the heels of celebrating ERISA’s 50th birthday in 2024, the PPA, another incredibly consequential piece of federal retirement plan legislation, reached a significant milestone when it turned 20 years old this summer.

1 2

Containing important provisions to address funding issues with defined benefit (DB) plans, the law also solidified innovation in 401(k)s and similarly-styled defined contribution (DC) plans while encouraging improvements in participant behavior that are often taken for granted today.

Before its passage, several high-profile companies either

underfunded or terminated their DB plans—largely due to higher costs from increasing longevity—which stranded their employees and strained the resources of the government’s federally mandated backstop, the Pension Benefit Guaranty Corporation (PBGC).1 Additionally, the rapid decline in companies offering a DB plan as part

“Understanding the Pension Protection Act and Your Retirement.” Elder and Disability Law Firm. california-elder-law.com. Jul 2, 2018.

“H.R.4 - Pension Protection Act of 2006.” Rep. Boehner, John A. congress.gov. July 28, 2006.

of their benefits packages and the simultaneous rise in those offering a DC plan meant that incentives and design changes were needed to encourage workers to save, especially at younger ages. No longer the company’s responsibility, the individual was now on their own to secure potentially decades’ worth of retirement funding.

NAPA Topic Spotlight Sponsored by

Politicians noticed.

Understandably nervous about pension plan insolvency, the future of the country’s retirement saving system, and the potential spending impact on Social Security and other social programs, Congress got to work.

Sponsored by eventual House Speaker John Boehner (R-Ohio) with significant input from fellow Ohioan and thenCongressman (eventually Senator) Rob Portman, the bipartisan, bicameral PPA passed both houses of Congress that summer, which President George W. Bush signed into law on August 17, 2006.2 Now, two decades later, did it achieve its stated goals, and in ways originally intended? Where did it fall short, if at all, and what’s still left to be done?

“The PPA was a sweeping piece of bipartisan legislation, addressing among other things defined benefit funding, pension accounting, and cash balance plans,” former American Retirement Association Chief Content Officer and PPA historian Nevin Adams recently wrote.3 “However, to my eyes, the most lasting influence of the PPA was on the defined contribution side, where it helped change not just plan design, but the industry’s thinking about participant behavior.”

With that as a focus, the following article will examine the law’s significant provisions and greatest successes. It will also review related legislation prompted by the PPA, concluding with a look at its legacy and a

“The PPA was a sweeping piece of bipartisan legislation, addressing among other things defined benefit funding, pension accounting, and cash balance plans. However, to my eyes, the most lasting influence of the PPA was on the defined contribution side, where it helped change not just plan design, but the industry’s thinking about participant behavior.”

——— Nevin Adams discussion of what comes next.

The goal is to produce a more informed and complete picture of PPA’s impact on retirement plan saving and coverage, what still needs to be done, and the innovation fueling it all.

SIGNIFICANT PROVISIONS

To Adams’ point, it’s called the PENSION Protection Act for a reason [emphasis added] and was meant to secure funding for DB plans and to ensure companies kept their promises to workers made years, sometimes decades, earlier.

To that end, the legislation included the following:4 • Required companies that underfund their

pension plans to pay additional premiums; • Extended a requirement that companies that terminate their pensions provide extra funding for the pension insurance system; • Required that companies measure the obligations of their pension plans more accurately; • Closed loopholes that allow under-funded plans to skip pension payments; • Raised caps on the amount that employers could put into their pension plans, so they could add more money during good times and build a cushion that could keep their pensions solvent in lean times; and

• Prevented companies with under-funded pension plans from “digging the hole deeper” by promising extra benefits to workers without paying for the promises up front.

Yet the PPA’s DC provisions provided the proverbial “shot in the arm” to boost retirement plan assets and participation to where they are today.

The Investment Company Institute’s most recent tally places defined contribution assets at almost $14 trillion as of the first quarter of 2026 (with $10 trillion of 401(k) assets, the largest share of employer-sponsored DC plans) covering 70 million active workers in roughly 730,000 individual plans.5 It did so by including the following items, among others:

“20 Years Later, Did the PPA Really Change Everything?” Nevin Adams. napa-net.org. August 11, 2026.

“Fact Sheet: The Pension Protection Act of 2006.” georgewbush-whitehouse.archives.gov. August 17, 2006.

“Resource Hub – 401(k).” ici.org. Q1 2026.

3 4 5

NAPA Topic Spotlight Sponsored by

Automatic Enrollment: Although many employers were offering 401(k) plans to their employees in the 1980s and 1990s, participation rates were low. The reason?

Workers had to affirmatively choose to opt in to the retirement plan, according to Robert Pozen, former MFS Investment Management Executive Chairman and current nonresident senior fellow at the Brookings Institution.

“However, behavioral economists found that the participation rates in DC plans were much higher under an arrangement called auto enrollment with an opt-out,” Pozen explained in a recent Brookings DC plan regulatory release. “In this arrangement, the employer automatically enrolls all its employees at a specified contribution level in a specified investment, but any employee may opt out entirely or choose a different contribution level or plan investment.

The PPA expressly allowed employers to utilize auto enrollment in their DC plans, Pozen added, and Congress “also created exemptions from complex non-discrimination tax testing if an employer’s contributions or matching contributions reached specified levels.”6 Qualified Default Investment Alternatives (QDIA): Once enrolled, participants must choose where to invest their contributions.

“Since employees do not actively sign up for a DC

plan with auto enrollment, they do not initially choose an investment option for their contributions,” Pozen noted. “Therefore, the employer must select a Qualified Default Investment Alternative (QDIA)—which an employee may choose to change.”

In other words, it’s a place to invest the contributions on the participant’s behalf until the participant affirmatively makes a change. According to the Department of Labor, a QDIA may be one of the following:

• Lifecycle or targeted date funds (TDF); • Balanced funds; or • Professionally managed accounts.

TDFs are by far the most popular QDIA, and roughly 86% to 98% of retirement plans use them as their default investment option for participants that are automatically enrolled in a plan.7 Assets in the vehicles have grown from about $100 billion in 2005 to $4.3 trillion as of year-end 2024.

Among the $9.2 trillion in 401(k) plans, $3.4 trillion (nearly 37%) is in TDFs, and over 65% of all 401(k)

TDFs are by far the most popular QDIA, and roughly 86% to 98% of retirement plans use them as their default investment option for participants that are automatically enrolled in a plan. Assets in the vehicles have grown from about $100 billion in 2005 to $4.3 trillion as of year-end 2024.

contributions go into TDFs.8 Yet, Adams noted that in 2006, they were still a developing concept.

“Today, they are a central part of the defined contribution investment landscape and the default investment for millions of participants, who, it’s worth noting, would otherwise have been left to their own devices in choosing— and maintaining—those portfolios.”

Professional Investment Advice: PPA removed legal barriers, allowing workers in 401(k)s and similar plans to receive professional investment advice under safe-harbor exemptions.

More specifically, it added an ERISA-prohibited transaction exemption, allowing advisors to assist plan participants without the risk of severe liability.

Advice must be delivered via a level-fee structure in which the advisor’s compensation does not vary with the chosen investments, or through an unbiased, certified computer model.

However, it does not exempt plan sponsors from their fiduciary duty to employ a prudent process when selecting and monitoring the advisors they offer to plan participants.9 “The PPA didn’t invent these provisions,” Adams said. “What it did was provide a structure and a roadmap for companies and individuals to adopt these approaches. But, importantly, not only a roadmap of how to do it,

“Defined contribution plan investments: A regulatory explainer.” Robert C. Pozen. brookings.edu. July 15, 2026.

“The Evolution of Qualified Default Investment Alternatives: Key Developments and Trends in 2024.” Sean McCaffery. fiducientadvisors.com. April 4, 2025.

8 “U.S. Defined Contribution Distribution 2025.” Chris Bailey. cerulli.com.

9 “U.S. Labor Department proposes rules on investment advice exemption for 401(k) plans and IRAs.” Employee Benefits Security Administration. dol.gov. August 21, 2008.

6 7

NAPA Topic Spotlight Sponsored by

but the assurance of a safe harbor if they did choose to include the approaches.”

GREATEST SUCCESS

When hailing the PPA’s success, it’s natural to mention auto-enrollment, QDIAs, and professional advice described above, as well as: • direct Roth IRA rollover conversions from a 401(k), 403(b), or 457 plan, • higher contribution limits, • catch-up contributions for those age 50 and older, and • participant access to investment performance information.

Yet one result that receives less attention is something trumpeted by the Bush Administration when the law’s 2006 passage was announced—it solidified the “higher contribution limits for IRAs and 401(k) s that were passed in 2001, enabling more workers to build larger retirement nest eggs.”

The 2001 legislation it referred to was the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), which included a massive tax cut during Bush’s first term and many provisions now credited to the PPA. Originally scheduled to sunset in 2010, the PPA made these critically important EGTRRA items permanent.

Originally scheduled to sunset in 2010, the PPA made these critically important EGTRRA items permanent.

While the retirement plan industry was traditionally good at providing information and options to participants, participants didn’t always act. The PPA therefore cemented many of the behavioral incentives needed to help participants help themselves. In addition to those previously mentioned, they also include the Saver’s Credit and expanded portability.

RELATED LEGISLATION

Just as the PPA built upon 2001’s EGTRRA, so too did the more recent Setting Every Community Up for Retirement Enhancement (SECURE) Act and SECURE 2.0 Act build upon the PPA. This is most pronounced with automatic enrollment.

While the latter didn’t introduce the concept of automatic enrollment, it provided legal protection for companies to include it in their plan designs.

SECURE 2.0 made this provision mandatory and now requires 401(k) and 403(b) plans to automatically enroll participants in the respective plans upon becoming eligible (employees may opt out of coverage). Under the legislation, the initial automatic enrollment amount is at least 3% but not more than 10%. Each year thereafter, that amount increases by 1% until it reaches at least 10%, but not more than 15%.

The changes generally apply to 401(k) and 403(b) plans established after December 29, 2022, and to plan years beginning after December 31, 2024.10

The PPA also made it easier for employers to adopt default investment choices, such as targetdate funds. SECURE 2.0 expanded further on plan design options by adding student loan payment matches and creating emergency savings accounts linked to pensions.11

LASTING LEGACY

MFS research noted that 20 years after the PPA’s passage, the retirement plan landscape has transformed: traditional DB plans are rare, while DC plans dominate.

“There are more than three times the number of participants covered by 401(k) plans than

by DB plans today,” it explained. “The PPA’s legacy is a retirement system with greater individual

responsibility and less employer risk — with less guaranteed lifetime income for most workers.”

While there’s still work to be done to close the retirement plan coverage gap by expanding access to retirement plans for more companies and employees, PPA and its successors have put the pieces in place to help ensure it happens.

Its enduring legacy is the help it provides in ensuring workers make the most of their planning and saving options to achieve a successful and affordable quality of life after years of hard work, and that they’re not on their own when doing so, especially during a sea change in the scope and structure of the country’s retirement plan system.

How Much Does 401(k) Auto-Enrollment Help Workers Save for Retirement? Munnell, Alicia. crr.bc.edu. January 9, 2025.

“SECURE 2.0 Passed. What Made It In?” Sprick, Snyderman, Akabas. bipartisanpolicy.org, Dec.22, 2022.

10 11

Before investing, consider the fund’s investment objectives, risks, charges, and expenses. For a prospectus, or summary prospectus, containing this and other information, contact MFS or view online at mfs.com. Please read it carefully.

Important Lifetime Fund Risk Considerations: The fund may not achieve its objective and/or you could lose money on your investment in the fund. You may experience losses near, at, or after the target date. There is no guarantee of the fund’s principal value, including at the target date, or that the fund will provide adequate income at and through your retirement. Stock: Stock markets and investments in individual stocks are volatile and can decline significantly in response to or investor perception of, issuer, market, economic, industry, political, regulatory, geopolitical, environmental, public health, and other conditions. Bond: Investments in debt instruments may decline in value as the result of, or perception of, declines in the credit quality of the issuer, borrower, counterparty, or other entity responsible for payment, underlying collateral, or changes in economic, political, issuer-specific, or other conditions. Certain types of debt instruments can be more sensitive to these factors and therefore more volatile. In addition, debt instruments entail interest rate risk (as interest rates rise, prices usually fall). Therefore, the portfolio’s value may decline during rising rates. Portfolios that consist of debt instruments with longer durations are generally more sensitive to a rise in interest rates than those with shorter durations. At times, and particularly during periods of market turmoil, all or a large portion of segments of the market may not have an active trading market. As a result, it may be difficult to value these investments and it may not be possible to sell a particular investment or type of investment at any particular time or at an acceptable price. The price of an instrument trading at a negative interest rate responds to interest rate changes like other debt instruments; however, an instrument purchased at a negative interest rate is expected to produce a negative return if held to maturity. International: Investments in foreign markets can involve greater risk and volatility than U.S. investments because of adverse market, currency, economic, industry, political, regulatory, geopolitical, or other conditions.

Underlying Funds: MFS’ strategy of investing in underlying funds exposes the fund to the risks of the underlying funds. Each underlying fund pursues its own objective and strategies and may not achieve its objective. In addition, shareholders of the fund will indirectly bear the fees and expenses of the underlying funds.

NAPA Topic Spotlight

Sponsor Spotlight

A discussion with MFS Lead Retirement Strategist and Managing Director Jeri Savage about the PPA and its impact.

Q Did the Pension Protection Act of 2006 (PPA) achieve its intended goals?

A Yes. The PPA fundamentally changed the retirement system by making it easier for workers to save and invest for retirement.

Automatic enrollment, automatic escalation, and Qualified Default Investment Alternatives (QDIAs) increased participation and helped move participants into diversified, professionally managed investments.

Just as important, the law gave plan sponsors a clearer framework for using these features with confidence. Over the past 20 years, these provisions have reshaped defined contribution plans and helped millions of workers build retirement savings. While retirement readiness challenges remain, the PPA successfully transformed how employers design plans and how participants engage with them.

Q Were there any unintended consequences, good or bad?

A One positive unintended consequence was the rapid adoption of target date funds and other professionally managed solutions. While policymakers hoped to improve participation, they may not have anticipated how dramatically QDIAs would reshape participant investment behavior or how quickly targetdate funds would become the dominant default option in many plans.

The law also accelerated a broader shift in responsibility from employers to individuals.

As traditional pension plans continue to decline, workers have gained more control over their retirement savings and have also assumed greater responsibility for achieving successful outcomes. As a result, today’s retirement system offers greater flexibility but less guaranteed retirement income than previous generations enjoyed.

Q How did PPA lay the foundation for later retirement legislation and regulation like the SECURE Act and SECURE 2.0?

A The PPA demonstrated that plan design matters. By showing that automatic features could significantly improve savings behavior, it created a roadmap for future retirement policy and helped establish the idea that outcomes can be improved through better defaults. SECURE and SECURE 2.0 built on those lessons by expanding automatic enrollment, encouraging broader plan coverage and increasing focus on retirement income and participant outcomes In many ways, the PPA marked the first major modernization of the defined contribution system, while later legislation sought to close gaps that emerged as the system evolved.

Q Twenty years later, what aspects of the PPA have had the most lasting impact on participant outcomes?

A The most enduring impact has been the combination of automatic enrollment and the creation of QDIAs. By providing fiduciary protection for sponsors that defaulted participants into diversified investments such as target-date funds, the PPA helped move participants away from cashheavy allocations and toward ageappropriate portfolios designed for long-term retirement investing.

Automatic enrollment helped move participants from inaction to participation, while QDIAs helped ensure that those contributions were invested more appropriately for long-term goals.

Q The PPA set a 3% default savings rate (to start), which is generally agreed to be too low. What have we learned over the last 20 years about default contribution rates and participant saving behavior?

A Experience has shown that defaults are powerful. Participants often treat the default as an endorsement and tend to stay where they are placed. While a 3% starting rate helped encourage adoption of automatic enrollment, higher savings rates and automatic escalation are often needed to support long-term retirement goals. The lesson is not simply to enroll people, but to design plans that gradually help them save at more meaningful levels.

Retirement readiness is also highly personal. Default contribution rates can help

The views expressed in this are those of MFS and are subject to change at any time. These views should not be relied upon as investment advice, as securities recommendations, or as an indication of trading intent on behalf of any MFS investment product.

participants get started, but improving outcomes ultimately requires a combination of plan design, participant engagement and a long-term savings strategy that reflects individual needs and circumstances.

Q If “It’s a Wonderful Life” applied to the PPA and the law never passed, what would retirement and retirement saving look like today?

A Without the PPA, the retirement landscape would look dramatically different.

Participation rates would likely be lower, fewer plans would use automatic features, and many participants might remain in cash or other conservative default investments rather than diversified portfolios designed for long-term growth. Plan sponsors also may have been slower to adopt participant-friendly design features without the legal clarity the PPA provided.

Perhaps more importantly, the retirement industry may not have embraced behavioral finance to the extent it has today.

One of the PPA’s most important contributions was recognizing that individuals often benefit from systems that make good decisions easier. Twenty years later, its legacy can be seen not only in higher participation and greater adoption of professional investment solutions, but also in a fundamental shift in how we think about helping workers prepare for retirement.

Sponsored by