Last week just a day after U.S. House lawmakers unanimously approved the pension reform measure, the Senate followed suit with its own unanimous approval of the bill (see Pension Relief Bill with RMD Moratorium Slides Through U.S. Senate ).
The bill would provide what is widely seen as some much needed relief on the required minimum distribution strictures, which work to begin forcing retirement savings out of their tax-deferred “shelters” (such as 401(k)s and IRAs) and into the hands of retirees (and thus, into the coffers of the Internal Revenue Service) once they reach age 70 Â½. Support for the proposal has been widespread support in Congress, and was touted up by both major party Presidential candidates on the campaign trail earlier this year (see McCain, Obama Back Loosening RMD Rules ).
However, the bill now waiting for President Bush’s signature only addresses the situation in 2009. Lawmakers have deferred to the Treasury Department on the issue of 2008 distributions (see Two RMD Delay Bills Filed , Collins asks Paulson to Cancel 2008 RMD Penalty ), some (perhaps many) of which have already been requested by account holders. Addressing this situation could well be complicated; the RMD is calculated based on the holder’s age, and the balance at the end of the previous year. Of course many retirees are now looking at balances that are significantly lower than they were at the calculation point – and will be confronted with liquidating the accounts to satisfy the RMD requirement at a particularly vulnerable time.
Assuming that Treasury is able/willing to lend a hand, it’s not yet certain what kind of relief might be available for those who have already requested these distributions. Bear in mind that the law imposes a 50% excise tax on any RMD a taxpayer fails to take.
The other major relief provisions in the bill have to deal with the imposition of more restrictive pension funding rules following the enactment of the Pension Protection Act of 2006 (PPA). Among the major new provisions are clarification of pension plan “smoothing,” 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 (see Pension Relief Bill with RMD Moratorium Slides Through U.S. Senate ).
In fact, while the RMD relief seems to have broad-based public support, the White House has, to date, been coy about the total package. Last week White House Spokesman Tony Fratto declined to say whether Bush would sign the bill into law. “We continue to have concerns about measures to reduce funding for worker pensions,” Fratto said in an e-mail to Bloomberg News.
Still, President Bush is expected to sign the legislation – after all, how often do you get a chance to sign something unanimously approved by both houses of Congress? As for this year’s RMD, retirees (and those they turn to for answers) will just have to wait and see.