Worker, Retiree, and Employer Recovery Act Passes Congress

By Gregg D. Killoren, J.D., State Banking Law Reporter and Individual Retirement Plans Guide, Dec. 18, 2008.

The House and Senate on December 10 and 11, 2008, respectively, approved the Worker, Retiree, and Employer Recovery Act of 2008 by unanimous consent, clearing the way for the president’s signature.

The legislation contains provisions related to retirement plans, as well as numerous technical corrections to the Pension Protection Act of 2006 (PPA). Among the most notable provisions of the new law is one that would provide older Americans with financial flexibility in their retirement plans to better deal with the economic crisis and resulting steep declines in the equity markets. Generally, the tax laws require a taxpayer to begin taking distributions from his or her traditional IRA soon after reaching age 70½ (Roth IRAs are not subject to the required distribution rules). The provision allows taxpayers, regardless of their total retirement account balance, to waive the required minimum distribution for 2009. The waiver also applies to beneficiaries of IRA owners.

The suspension of the required minimum distribution is designed to allow retirees to keep money in their accounts and possibly recover some of the losses sustained in 2008. As of December 17, the S&P 500 Index, a widely followed index of U.S. stock market activity, had declined approximately 38 percent from its 2007 high. Without the suspension, taxpayers aged 70½ and older would have to sell depleted-in-value assets, such as stocks and mutual funds, held in their retirement accounts in order to make required minimum distributions. The current rule is that a 50-percent excise tax applies under Code Sec. 4974(b) on: 

1. the tax year's required minimum distribution, 
2. less the amount that was actually withdrawn from the taxpayer's retirement account. 

If the required minimum distribution is waived for 2009, the excise tax wouldn't apply for that year.

Provisions

Additional provisions in the bill will allow single-employer pension plans to account for expected and unexpected earnings in addition to contributions and distributions when determining the value of the plan's assets. Those plans that fall below the set target funding percentage for a particular year will be required to fund up to the specified funding percentage for that year, instead of 100 percent. Another measure gives generally healthy multi-employer pension plans that were hurt by the decline in the stock market the ability to avoid drastic contribution increases and cutbacks in worker benefits.

Other provisions in the bill were also included in the Pension Protection Technical Corrections Act of 2008 (H.R. 6382), originally passed by the Senate in December 2007 and the House in March and July of 2008. Among the technical corrections to the PPA is a modification with regard to non-spouse beneficiaries of qualified plan participants and IRA owners. Employer-sponsored plans will be required to offer non-spouse beneficiaries a rollover option for plan years beginning after 2009.