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YOUR ESTATE PLAN: IDEAS YOU CAN REALLY USE

Congress Provides Retirement Plan Relief for Biz Street

Earl H. Cohen, Attorney at Law

In our December issue of eWatch we discussed the provisions of the recently passed Worker, Retiree and Employer Recovery Act of 2008 ("Act") that provide relief for Main Street, that is employee participants in retirement plans. The Act, however, also 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

Under the Act, pension plans are allowed:

• To "smooth" out their unexpected asset losses. The Act 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.

• To 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

Under the Act, 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.

• 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.

Planning opportunities

Some business owners may believe that they will have an enormous job in 2009 just keeping their company profitable and thus may not plan on updating, upgrading or expanding their retirement plan. In fact, 2009 may be a very good year to consider upgrading the company plan. Holdbacks in the expansion of plant and equipment may leave cash in the company beyond normal cash needs, allowing further funding of retirement plans. For employee participants, 2009 may provide a great buying opportunity for equities in their account, given the historic low prices.

Please keep in mind that this is only a summary of these new provisions. If you would like to discuss these or other provisions contained in the new legislation in greater detail, please feel free to call one of the attorneys of the Business Practice Group of Mansfield Tanick & Cohen, P.A.

Attorney Earl H. Cohen is the Managing Shareholder of Mansfield Tanick & Cohen, practicing in the areas of business, asset protection planning, and estate administration, assisting his individual and business clients with the organization, operation and, when necessary, financial reorganization of their business and/or individual interests. He can be reached at 612-339-4295 or via email at ecohen@mansfieldtanick.com.