Pension Relief Passed by House and Senate
December 18, 2008
Last week, both houses of Congress passed H.R. 7327, the Worker, Retiree, and Employer Recovery Act of 2008. The measure is intended to ease financial strain on senior retirees as well as sponsors of defined benefit plans.
The recent economic downturn has hit hard on sponsors of defined benefit plans, including employees. New funding rules enacted under the Pension Protection Act of 2006 require employers that sponsor such plans to make large catch-up payments when the value of pension plan assets falls below certain levels, as many have experienced recently. The new rules require that market losses in the pension plan be fully paid up within seven years and impose considerable unpredictability in uncertain economic times.
Employers are required to fund defined benefits plans in advance. Plans typically provide a pre-determined annuity to retirees. These plans are structured differently from defined contribution plans, such as 403(b) retirement savings plans, in which the employer makes contributions each year, but the value of the retirement benefit is unspecified.
Key provisions of H.R. 7327 include:
- A one-year moratorium on required minimum distributions for retirees (aged 70 ½ and over) from individual retirement accounts and defined contribution plans;
- A technical correction provision providing that a rollover from a Roth designated account in a tax-qualified retirement plan or tax-sheltered annuity to a Roth IRA isn't subject to the gross income inclusion and adjusted gross income conditions;
- For defined benefit plan sponsors, transition relief in the form of retaining the full funding level for 2009 at 92 percent and removing the "cliff" that requires plans below the full funding level to begin making payments to fund up to 100 percent of liabilities rather than 92 percent; and
- Permission for sponsors of defined benefit plans to look to funding levels at the beginning of 2008 rather than 2009 for determining whether Pension Protection Act automatic benefit restrictions must be put in place.
H.R.7327 was passed by the House on December 10 and the Senate on December 11. It is anticipated that the bill will be signed by President Bush.
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