For all the talk about a do nothing Congress last year, under the radar screen, Congress passed the Pension Protection Act which will significantly increase defined contribution plans and stock ownership...

The Pension Protection Act made several key changes to defined contribution and defined benefit plans which has forced Morgan Stanley to increase their forecast for net equity defined contribution flows from $11 billion in 2008 to $30 billion. If you are keeping score this is a 172 percent increase in annual net flows. Very positive for growth, wealth creation, and retirement savings.

...First, the legislation made expanded 401(k) and IRA contribution amounts permanent. Originally signed into law as part of the 2001 tax cut these are the only Bush tax cuts made permanent to date and will ensure these flows are not reduced with the rest of the tax cuts expiring.

Second, the legislation removed the barriers to employers automatically defaulting their employees into the 401(k) plan... A number of news reports show a dramatic jump in automatic enrollment since the legislation passed and this will increase the number of people participating in 401(k)’s and the amount of equity flows for markets...

Third, the legislation provides incentives for employers to move the default fund away from an interest bearing money market fund and toward a default stock fund. At the same time the legislation allows the 401(k) provider to provide asset allocation advice. These two factors combined will increase money into the stock market and produce better returns for American workers...

On the defined benefit side employers are being asked finally to realize the true cost of their defined benefit pension plans. So initially employers, save for airlines and autos, will have to increase their pension payments. But once the funds are stabilized in five to seven years many of these employers will shift to defined contribution plans realizing 401(k)’s are much more efficient in both terms of the employers and employees...

Legacies do not have to occur while the President is sitting in the office. The Berlin Wall fell several years after Reagan left office but he is credited with winning the Cold War. Likewise with Bush. The increase in the number of shareholders and wealth creation will occur after he leaves office but it is this very legislation which will be responsible. Incremental changes have turned out to be far more effective in creating the ownership society through Health Savings Accounts, lower taxes on savings and investment, and increased defined contribution incentives.