Worker, Retiree, and Employer Recovery Act of 2008
The Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) passed the House and the Senate in December 2008 and was signed into law by President Bush on December 23, 2008. The law includes technical corrections to the Pension Protection Act of 2006 (PPA) and short-term relief to help individuals and plan sponsors through the sharp market downturn.
PPA Technical Corrections.
The Treasury Department now has the authority to write guidance regarding benefit restrictions and quarterly contributions for small defined benefit (DB) plans with end-of-year valuation dates. The corrections include:
- DB plans may cash out terminated participants without participant consent if the present value of the vested benefit is $5,000 or less, regardless of whether the plan is subject to benefit restrictions
- For employers with both a DB and a defined contribution (DC) plan, if contributions to the DC plan are less than 6 percent of compensation, the DB plan is not subject to the overall deduction limit (25 percent of compensation). If contributions to the DC plan exceed 6 percent of compensation, only the contributions in excess of 6 percent of compensation count toward the overall limit
- Rollovers by a nonspouse beneficiary will generally be subject to the same rules as other eligible rollover distributions, effective for plan years beginning after December 31, 2009. Plans are required to provide a direct rollover option for nonspousal beneficiaries (as required for any other direct rollover distribution). Additionally, the Section 402(f) notice must be sent to nonspouse beneficiaries
- Permissible withdrawals during the first 90 days under an automatic contribution arrangement (ACA) are no longer contingent upon satisfying the qualified default investment arrangement (QDIA) rules of ERISA Section 404(c)(5). Permissible withdrawals are also now available to SIMPLE plans and SEP IRAs. In applying the annual limit on elective deferrals under IRC Section 402(g)(1), permissible withdrawals are disregarded
- The calculation of gap period income on the distribution of excess deferrals is eliminated. Since it was previously eliminated (by PPA) from refunds due to a failed ADP/ACP test, calculating gap period income is no longer required for any purpose
- Effective for plan years beginning after 2008, small employer DB plans can use a fixed 5.5 percent interest rate for determining maximum lump-sum benefits
- There is special funding target relief for DB plans due to the economic downturn
RMDs Waived for 2009.
Required minimum distributions (RMDs) for 2009 are waived for qualified plans (such as profit sharing and 401(k) plans), IRAs, 403(a)s, 403(b)s, and 457(b) plans. This law change permits individuals who attain age 70½ in 2009, as well as individuals who already receive required minimum distributions, to avoid having to take a minimum distribution for 2009. Guidance was issued by the IRS (Notice 2009-9) regarding the waiver of the 2009 RMD. It reflected that a distribution, up to the RMD amount, will not be subject to the mandatory 20 percent withholding rules. Amounts distributed above the RMD amount will, as usual, be considered eligible for rollover and subject to the mandatory 20 percent withholding.
There had been a great deal of media speculation that the 2008 RMD would be waived. At the time this was written, there was no change in the 2008 RMD rules. Though the relief for 2009 is helpful, the use of much higher 2007 valuations to determine 2008 distributions and the need to liquidate assets at depressed prices have caused real problems, for which no relief was granted.
