Just before adjourning for 2008, Congress passed the Worker, Retiree and Employer Recovery Act to help pension plans meet their funding requirements and to give relief to seniors who must take required minimum distributions (RMDs) from their retirement savings. The new law also makes many technical corrections to the Pension Protection Act of 2006 (PPA), which overhauled pension plan funding and governance. Many of the provisions in the new law are in response to the economic downturn. If the economy continues to slow, Congress could enact more help for pension plans and retirees in 2009.
Plan funding
Two years ago, Congress imposed tougher funding rules on pension plans because it was concerned that many plans were under-funded. The PPA requires plans to meet certain funding targets. Because of the economic slowdown, many employers were unable to meet these targets and they asked Congress to ease them. The new law temporarily allows plans to fund up to certain targeted percentages rather than 100 percent.
The new law also allows asset "smoothing" over 24 months. Smoothing helps plans by permitting them to take expected investment returns into account when calculating asset values.
Funding relief, asset smoothing and other provisions in the new law are intended to give employers and plans breathing room to ride-out the recession. However, Congress did not relax any of the tough notification and disclosure rules to participants in the PPA.
RMDs
Many individuals have seen the value of their IRAs, 401(k)s and similar arrangements plummet in 2008. The decline is especially hard on seniors who must take RMDs from these accounts or risk paying a 50 percent excise tax.
The new law helps seniors...but not right away. Congress voted to suspend RMDs for 2009 but not for 2008.There is a possibility that the IRS (or Congress in retroactively-targeted legislation) may give individuals some type of RMD relief in 2008. RMDs for 2008 are based on account balances as of December 31, 2007. The IRS or Congress could move that date forward to reflect the decline in many portfolios. Or no relief for 2008 will be granted at all because of the late date. We will keep you posted on developments.
Non-spouse rollovers
Another taxpayer-friendly provision in the new law concerns non-spouse rollovers. Before the new law, there had been some questions as to whether non-spouse rollovers were mandatory or optional for plans. The Worker, Retiree and Employer Recovery Act clarifies plans must permit non-spouse rollovers.
More help for plans
The new law clarifies many provisions in the PPA that affect at-risk pension plans, multi-employer plans and small plans. Among other things, it:
--Extends the $3,000 exclusion for health insurance premiums for retired public safety officers to self-funded arrangements.
--Authorizes plans to pay lump sums of $5,000 or less even if a plan is otherwise prohibited from paying lump sums.
--Requires plan expenses expected to be paid out of plan assets to be included in calculating the plan's target normal cost.
If you have any questions about the Worker, Retiree and Employer Recovery Act, please contact our office.
