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Is Your Retirement in Danger?

We're starting with one assumption in this article:

  1. You hope to someday retire comfortably from full-time, 9-to-5 work.

With that out of the way, meet H.R. 4
H.R. 4, better known as the Pension Protection Act of 2006, was signed into law late in 2006. The new legislation is far-reaching -- it affects pensions, 401(k)s, Roth IRAs, 529 college savings plans ... actually, it affects every taxpayer in the United States in one way or another.

So get to know H.R. 4.

OK, if you followed that link, then you just saw how long the act actually is -- there are more than 100 sections. (Who says our government isn't thorough?) So let's cut to the good stuff.

The short, short version
According to an Associated Press story, the pension reform "reflects the evolution of workers' retirement benefits -- the decline in traditional pensions ... and the rise of defined-contribution savings plans that rely on workers to build retirement assets."

In other words, the government wants you to be on the hook for more of your retirement going forward.

The word evolution seems particularly apt. In an article last year, we wrote that the decline of passive retirement planning is not so much a problem as an opportunity. Gone are the days of Benevolent Corporation sending checks to Grateful Worker every month.

That's not because pension plans weren't a nice idea. The problem is they aren't as reliable as they seemed. For myriad reasons, including the rising costs of health care, increasing global competition, and market risks in a down economy, more and more companies are taking steps to end their defined-benefit plans. Since 2004, for example, Aon (NYSE: AOC  ) , Motorola (NYSE: MOT  ) , Hewlett-Packard (NYSE: HPQ  ) , Lockheed Martin (NYSE: LMT  ) , and Sears Holdings (Nasdaq: SHLD  ) have either fully or partially frozen their pensions.

This is good news!
In fact, the Pension Rights Center believes that the new legislation will further weaken the pension system because it ultimately "increases the likelihood that companies will jettison secure pension plans in favor of insecure do-it-yourself savings arrangements."

"Secure" pension plans? "Insecure" do-it-yourself arrangements? Those strike us as relative terms. After all, retirement savings are only as secure as the person in charge of them. Judging by the number of companies with pension deficits, the pension shortfall of our own federal government, and the deep debt of the Pension Benefit Guaranty Corp., we can't help thinking that faceless entities that don't care about your retirement would probably continue to disappoint.

According to a 2005 Pew Research Center poll, the American public at large distrusts both the federal government and big business. According to the survey, "Over the past year, ratings have tumbled for the federal government and Congress. And it is not just Washington institutions that are being viewed less positively. Favorable opinions of business corporations are at their lowest point in two decades."

If that's the big-picture view of government and corporations, then why would we rely on those two entities -- for Social Security and pension checks -- during the precious post-work years of retirement? We wouldn't. And that's why, when it comes to planning for the future, we think you are the best person to manage your money.

Maybe that's a scary thought
The obvious downside is that you don't have the expertise of 1,000 or more salaried economists plugging away on their abacuses to determine optimal asset-allocation ratios, accurate long-term economic growth rates, and future rates of inflation. And those are pieces of information you do need to know to map out your retirement plan.

But here's the upside: You're honest and reliable, willing to learn, and deeply invested in making sure that your retirement plan works for you. Those are three traits that neither your government nor your employer -- nor anyone else, for that matter -- likely possesses.

And there's more good news. To make sure you can take full advantage of your retirement smarts, the Pension Act also made permanent the current higher contribution limits to IRAs (which were due to expire in 2010), the Roth 401(k) savings vehicle (also due to expire in 2010), and the saver's credit.

The Foolish bottom line
Your retirement is now in your hands, and there are many ways for you to profit from that fact. But if you'd like some more helpful hints, you can take advantage of a special "Open House" to our Motley Fool Rule Your Retirement service. Through March 12, you can access Rule Your Retirement free of charge (no credit card required) and learn more about the Pension Protection Act of 2006, as well as all the other aspects of retirement you need to consider. Click here to see the Rule Your Retirement Open House.

This article was originally published on Aug. 29, 2006. It has been updated.

Brian Richards and Tim Hanson are retired from high school athletics. Neither owns shares of the companies mentioned in this article. They tell you this for one reason and one reason only: the Fool's disclosure policy.

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Brian Richards

Now: I work on global strategy for The Motley Fool with a focus on Canada, Europe, and South America. Former: Managing Editor of The longer version:

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