On December 23, 2008, President Bush signed the “Worker, Retiree, and Employer Recovery Act of 2008” (H.R. 7327) into law.  This act passed in lightening speed throuigh the House and Senate by unanimous consent. The House passed the bill on December 10, 2008, the same day that it was introduced in the House, and the Senate passed it the next day, clearing the way for the President's signature.

Minimum distribution requirements suspended for 2009. A key provision in the recently passed Worker, Retiree and Employer Recovery Act of 2008 is designed to help alleviate the financial burden facing seniors who have seen their retirement savings shrink dramatically. The new provision provides relief to senior citizens by allowing them to continue to keep money in retirement accounts that they are typically required by law to withdraw once they reach age 70 1/2. Here's a brief summary of this new provision:

Our tax laws generally individuals with retirement accounts to make required withdrawals based on the size of their account and their age every year after age 70 1/2. This rule is intended to prevent wealthy individuals from using retirement accounts as a tax shelter. Any individual who fails to take a required minimum distribution (RMD) is heavily penalized by the IRS, which taxes the amount not withdrawn at 50%.

The new law suspends the required minimum distribution from retirement accounts in 2009. This waiver, which is available to everyone regardless of their total retirement account balances, applies to all defined-contribution plans, including 401(k), 403(b), 457(b), and IRA accounts. Suspending the mandatory withdrawal allows retirees to keep the money in their account if they choose, and possibly recover some of their losses.

The bill also makes technical corrections to the Pension Protection Act of 2006 (PPA), including a technical modification of great interest for nonspouse beneficiaries of qualified plan participants and IRA owners. 

Pension plan relief.  The recently passed Worker, Retiree and Employer Recovery Act of 2008 includes important provisions that ease funding requirements for employer-sponsored pension plans. Absent the new legislation, these plans would have been forced to make significantly increased contributions during the current financial crunch when they are very short on cash. The new law provides pension funding relief for both single-employer and multi-employer plans. Here's a brief summary of these new provisions:

Relief for single-employer plans.  Pension plans are allowed to “smooth” out their unexpected asset losses. The new law permits employers to “smooth” the value of pension plan assets over 24 months instead of having to apply the mathematical average that Treasury requires. This change will soften the accounting of 2008 plan losses.

Adjust the transition to the new funding rules. Previous pension legislation phases in full pension funding targets from 90% to 100% over 5 years (2008 - 92%, 2009 - 94%, 2010 - 96%, 2011 - 98%, 2012 - 100%). If a plan misses its target in a phase-in year, then the target automatically increases to 100%. The new law adjusts the “phase-in” rule to allow plans which miss their phase-in funding target to retain the same target and not jump to the 100% target. For example, for plans that are less than 92% funded in 2008, their shortfall would be estimated relative to 92%, not 100%. With a sizable number of plans below 92% funded next year, the adjustment of this phase-in rule could provide significant relief.

Relief for multi-employer plans.  Plans may elect to “freeze” their plans' status for one year. For plans starting between October 1, 2008 and October 1, 2009, multi-employer plans may elect to freeze their current funding status based on the previous year's level. This would freeze the terms of the funding improvement or rehabilitation plan adopted at any time during the previous plan year.

Plans may elect to extend correction periods. Plans generally must bring their funded position up to statutory standards within a correction period (10 years or 15 years). This structure aims at enabling stakeholders in troubled plans to phase in the higher contributions or deeper benefit cuts over a period of time. Under the new law, plans may elect a 3-year extension of the current funding improvement or rehabilitation period, from 10 to 13 years and from 15 to 18 years. Election of this extended correction period would help offset 2008 equity losses.