Your Estate Plan: Ideas You Can Really Use

Congress Provides Some Retirement Plan Relief for Main Street

By Earl H. Cohen, Attorney at Law

This last week the House of Representatives by unanimous consent passed the "Worker, Retiree and Employer Recovery Act" ("WRERA"). Senate Finance Committee Chair, Max Baucus said that he hoped to take up the bill in the Senate soon.

WRERA would, first and foremost, ease funding requirements for employer-sponsored pension plans that, absent legislation, will be forced to make significantly increased contributions during the current financial crunch when they are very short on cash. The bill includes temporary funding relief for multi-employer plans that have been negatively impacted by the economic downturn.

One of the more widely anticipated provisions in the pension bill would waive the required minimum distribution (RMD) requirement for retirement plans and IRAs for calendar year 2009. This would specifically help taxpayers who are 70 1/2 and older and who would otherwise have to sell depleted value assets, such as stocks and mutual funds, held in their retirement accounts in order to make RMDs. The current rule is that a 50 percent excise tax applies to a failure to take the full RMD . If the RMD requirement is waived for 2009 the excise tax wouldn't apply for that year.

WRERA also carries many technical and clarifying changes to the Pension Protection Act of 2006 (PPA), including changes for underfunded plans, hybrid plans and the combined plan deduction limit. The technical corrections portion of the bill would make an important modification for non-spouse beneficiaries of qualified plan participants. Under IRS's interpretation of a PPA change, effective for distributions after 2006, non-spouse beneficiaries of an inherited qualified plan account may (but are not required to) make a trustee-to-trustee transfer of part (or all) of the deceased employee's account balance in a qualified plan (or a 403(a), 403(b), or 457 plan) to an IRA (or individual retirement annuity). The transfer is treated as an eligible rollover distribution, and the receiving IRA is treated as an inherited IRA. Under a technical correction, effective for plan years beginning after December 31, 2009, qualified plans would have to permit rollovers by non-spouse beneficiaries.

Please feel free to call either me or Jeff O'Brien with any questions on your retirement or estate plan.