Long-time pension activist U.S. Senator Benjamin L. Cardin (D-Maryland) issued a statement late Thursday praising his Senate colleagues for moving the Pension Protection Technical Corrections Act of 2008 through the process on a rapid timetable.
The House measure, H.R. 7237, passed out of the Senate as H.R. 6382, according to House and Senate records.
“This bill is critically important for millions of seniors who might have been penalized financially for our nation’s economic downturn,” Cardin said in a statement. “If we had failed to pass this moratorium, seniors would have been forced to take a loss on their investments just because they reached age 70 Â½, after they worked hard all their lives to save for retirement.”
In addition to the RMD issue, the bill includes a variety of pension funding measures and other provisions being sought by retirement services industry trade groups.
According to an announcement by Senator Max Baucus (D-Montana), H.R. 7327 is virtually identical to the pension package the Senate hotlined on Thursday, November 20th, except H.R. 7327 does not include three provisions; provisions relating to (1) bonus depreciation, (2) small business expensing, and (3) Indian tribal government pension plans.
The announcement said that H.R. 7327 made "very minor non-substantive, technical changes to the Senate version per the Joint Committee on Taxation's review of the legislative language." Among the major new provisions are:
Pension Recovery Provisions
- 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.
- The provision 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.
The bill also features:
- clarification of pension plan "smoothing," allowing plans to recognize unexpected asset gains and losses over 24 months;
- multiemployer plan relief, permitting plan sponsors to elect to temporarily freeze the status of certain multiemployer plans at the same funding status held in the previous plan year;
- a rule easing the requirement that would otherwise compel employers to restrict the accrual of pension benefits; and
- improved transition to the new funding rules, in which the phased-in funding threshold would hold at 92% for another year.
Before the Senate action, trade groups had expressed kudos to the House lawmakers for acting quickly and called on members of the other Congressional chamber to follow suit (See RMD Bill Also Includes PPA Technical Corrections ).
A separate Senate pension relief bill introduced in November before the Congressional Thanksgiving break also included a RMD moratorium feature (See Senate Leaves Town with Pension Aid Bill Untouched ).
Pension Protection Act Technical Correction Provisions
- The 2008 transition rule for determining at-risk status applies to both the 70% and
- 80% prongs.
- Lump sums of $5,000 or less can be paid, even if an underfunded plan is otherwise
- prohibited from paying lump sums.
For applicable defined benefit (hybrid) plans:
- The new vesting rules for hybrid plans are effective on the basis of plan years and apply to participants with an hour of service after the applicable effective date for the plan.
- The new interest crediting rules for hybrid plans in existence on June 29, 2005 apply to years beginning after December 31, 2007, unless the sponsor elects to apply the rules earlier.
- The vesting and interest crediting rules that apply to collectively bargained plans do not apply to plan years beginning before the earlier of: (1) (a) the later of January 1, 2008 or (b) the termination of the collective bargaining agreement; or (2) January 1, 2010.
The IRS also noted that the combined plan deduction limit for defined benefit and defined contribution plans does not apply to the defined benefit plan if contributions to the defined contribution plan are no more than 6% of compensation. If these contributions are more than 6% of compensation, only contributions in excess of 6% count toward the deduction limit.
All plans must permit rollovers out of the plan for non-spousal beneficiaries. It also said that:
- The exclusion for up to $3,000 of health insurance premiums for retired public safety officers applies to self-funded arrangements. To be excluded, the amounts must be distributed from a public safety officer's former employer's retirement plan.
- Plan expenses expected to be paid out of plan assets must be included in calculating
- the plan's target normal cost.
- The Secretary of Treasury is given authority to prescribe special rules for small defined benefit plans that have a valuation date other than the first day of the plan year for purposes of, among others, quarterly contributions and determining the
- application of the benefit restriction rules.
- Rollovers from a Roth 401(k) or 403(b) plan to a Roth IRA are not subject to the
- Roth IRA contribution AGI limits.