The Job Creation and Worker Assistance Act of 2002 passed the Senate 85-9 on Friday – and the House 417-3 on Thursday. The margins and speed of passage were in stark contrast to the months of partisan gridlock that had killed three prior versions passed by the House.
Breathing Room for Pensions
Last year, the Treasury discontinued the sale of 30-year bonds. Plan sponsors had been struggling with an unanticipated consequence – lower interest rates on the remaining 30-year Treasurys that can make a plan appear underfunded. These increased funding obligations are primarily due to the required use of the 30-year Treasury bond rate for valuing the benefit liabilities of the pension plan.
When funding their plans, employers must determine funding targets and contributions using an interest rate no greater than 105% of a four-year weighted average of 30-year Treasury bonds. It is expanded by the new law to a range of 90% and 120% for this year and next under the stimulus bill, broadening a plan’s assumptive options.
Other changes include:
- Electronic filing of Forms 1099 – The new law now allows information returns to be sent electronically, as long as the recipient agrees. Currently, copies of some information returns must be presented to the named individual either in person or in a statement sent by first-class mail in a specified format.
- The new law extends for two years, until December 31, 2003, the Work Opportunity Tax Credit and Welfare-to-Work Tax Credit
- Archer Medical Savings Accounts are extended through December 31, 2003.
The Job Creation and Worker Assistance Act of 2002 also makes more than 20 technical corrections to 2001’s big tax cut, EGTRRA and some earlier tax laws. According to CCH, the bill:
- corrects the dollar amounts used for calculating and indexing future cost of living adjustments.
- clarifies that distributions made after an individual’s severance from employment will be taken into account in determining top heavy status for only one year.
- increases the tax-free contribution limit to 25% on Simplified Employee Pensions (SEPs). EGTRRA increased the cap on annual deductible contributions to a SEP to 25% of an individual’s compensation.
- clarifies that to take advantage of the small business tax credit for new retirement plan expenses under EGTRRA, the plan must be first effective after December 31, 2001.
- clarifies that a person who reaches age 50 by the end of the tax year is eligible to make catch-up contributions as of the beginning of the year.
- requires plans to provide for the rollover of after-tax contributions only to a qualified defined contribution plan or a traditional IRA. With respect to spousal consent to cash-out of the benefit, the bill clarifies when rollover amounts may be disregarded.
- clarifies that the EGTRRA-mandated participant notice requirement of significant future reductions in benefits applies only to qualified defined benefit plans and, depending on the type of the reduction, if the benefit is significant.