AAF NewsFlash

The goals of Alexander, Aronson, Finning & Co., P.C., are focused on helping you plan effectively for your work, personal, and/or family obligations. The economic downturn and mounting stock market losses are shrinking retirement accounts and impeding employers' ability to meet pension funding requirements. The Worker, Retiree and Employer Recovery Act of 2008 (WRERA) is designed to help seniors recover some of the value their retirement accounts lost this past year and ease employer pension funding requirements.

Excise tax affecting seniors suspended

Many seniors have been particularly hard hit because of rules stipulating that those age 70½ or over generally must take required minimum distributions (RMDs) from their IRAs, 401(k)s or other tax-deferred retirement plans each year. Failure to withdraw the RMD in any year could result in a 50% excise tax on the shortfall. The RMD for a given year is the balance as of Dec. 31 of the prior year divided by a factor based on age.

As a result, those having to take RMDs in 2008 have had to base their withdrawals on Dec. 31, 2007 , values — which in many cases were considerably higher than current ones. This requirement has caused them to take larger RMDs than they would have based on current values.

WRERA temporarily suspends the RMD excise tax for 2009 for IRAs as well as all defined contribution plans, including 401(k), 403(b) and 457 plans. This gives seniors the option to keep remaining funds in their plans for another year without incurring a tax penalty. This provision applies to all individuals age 70½ or older, regardless of their retirement plan's account balance or whether the plan has incurred any losses.

Employer pension funding requirements eased

The economic downturn has also greatly affected employers' ability to fund pension plans. WRERA eases the pension funding requirements enacted in PPA. Here are some of the key changes for:

Single-employer plans. Under PPA, employers were required to increase funding for single-employer pension plans to 100%, from 90%, over a seven-year period. The target funding level is 92% in 2008 and 94% in 2009. The penalty if employers didn't reach those benchmarks had been that they must immediately fund the plan 100%. Under WRERA, employers who can't meet these requirements must make subsequent contributions only up to the target for that year, rather than hit the 100% target.

Multi-employer plans. WRERA offers relief for multi-employer pension plans that are “endangered” or in “critical status.” PPA provided funding restrictions for these plan types, and the new law eases those restrictions. Specifically, the act allows plan sponsors to elect to temporarily freeze the status of certain multi-employer plans at the funding status held during the previous plan year. This covers plan years beginning on or after Oct. 1, 2008 , and before Oct. 1, 2009 . Also, if the plan was “endangered” or in “critical status” the preceding plan year, it isn't required to revise its funding improvement plan or schedules until the following plan year.

Allowing nonspouse beneficiary rollovers now mandatory

WRERA makes it mandatory that, beginning after 2009, qualified retirement plans, 403(b) plans or 457 plans allow nonspouse beneficiaries of a deceased participant to roll over their balance directly to an “inherited IRA.” PPA had made this a permissible option, but not a requirement.

We hope this information assists you. Even though WRERA's main provisions are relatively simple, knowing whether they apply to you (ex. required minimum distributions had to be taken for 2008), how they affect you, and what to do about them is a more complicated matter . If you need further assistance or have any questions, please contact one of our partners at your convenience. We hope this information helps you mitigate the impacts of the current recession.

Sincerely,

Your Friends at Alexander, Aronson, Finning & Co., P.C.