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The Worker, Retiree, and Employer Recovery Act of 2008
(H.R. 7327) was recently passed by the House and Senate
and currently awaits the President's signature. The Act
suspends required minimum distributions from 401(k) plans,
IRAs and similar retirement accounts for 2009, as well
as provides pension plan funding relief. The Act also
contains technical corrections to the Pension Protection
Act of 2006.
A summary of the major provisions of the Act (from the
Senate release dated December 11, 2008) include the following:
- The provision places a one year moratorium on required
minimum distributions from individual retirement accounts
and defined contribution plans for 2009. This proposal
is estimated to cost $3.6 billion over ten years.
- Under current law, the funding target under the Pension
Protection Act of 2006 (PPA) is phased in over three
years. For those plans that fall below the set target
funding percentage for a particular year, the provision
would require these plans to fund up to the specified
funding percentage for that year, instead of 100%. This
provision is effective as if included in the Pension
Protection Act. The proposal is estimated to raise $43
million over ten years.
- For plan years starting between October 1, 2008 and
October 1, 2009, the provision would permit multi-employer
plans to elect to freeze their current funding certification
for one year based on the previous year’s level. This
proposal is estimated to raise $10 million over ten
years.
- Extends the current funding improvement or rehabilitation
period for multi-employer plans that have funding improvement
and rehabilitation plans in place in 2008 and 2009 by
3 years, from 10 to 13 years. This proposal is estimated
to raise $52 million over ten years.
- Under current law, a single-employer pension plan
that is less than 60% funded must freeze all benefit
accruals for plan participants. The provision would
allow plans to lookback to the plan's funding status
during the previous plan year (if that level was greater)
for purposes of determining whether the restriction
on benefit accruals would apply. This provision would
apply for plan years beginning on or after October 1,
2008 and before October 1, 2009 only. For plan years
beginning January 1, 2009, that means a lookback to
January 1, 2008 conditions. This provision has a negligible
revenue effect.
- Airline workers whose defined benefit pension plan
was terminated or frozen as a result of bankruptcy (filed
after September 11, 2001, and prior to January 1, 2007)
would be allowed to roll-over bankruptcy payments intended
to replace lost retirement income to a Roth individual
retirement account ("Roth IRA"). This provision is estimated
to cost $82 million over 10 years.
- Small defined benefit plans would be required to determine
the value of lump sum distributions not in excess of
the Code section 415 limit using a fixed 5.5% interest
rate, instead of the greater of the 5.5% rate or 105%
of the corporate bond yield curve rate. This provision
is estimated to cost $59 million over 10 years.
- Governmental retirement plans that credit a plan participant's
account balance with a specified interest rate would
be permitted to use a rate that exceeded the "market
rate of return" (as defined by the Treasury Department),
provided the governmental plans' interest rate was set
by Federal, State, or local law. This provision has
a negligible revenue effect.
- A plan established by a State or local government
to reimburse certain medical care expenses incurred
by State or local government employees on a tax-free
basis shall not lose this favorable tax treatment merely
because the plan provides for reimbursements of medical
care expenses incurred by a deceased plan participant's
non-spouse/non-dependent beneficiary. This provision
is estimated to raise $3 million over 10 years.
For further information, read the original Senate
Press Release
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