Ott & Associates Co., LPA - Attorneys at Law

216-771-2600

Contact Us | Directions

Articles

New Bills Offers Pension Relief

After unanimously passing in both the House and Senate, President Bush signed legislation in December of last year that saves businesses from having to inject billions of dollars into pension plans and affords older Americans some financial flexibility during the difficult economic time. The Worker, Retiree, and Employer Recovery Act of 2008 had been a priority of business groups, which contend that some companies would have to freeze pension plans, lay off workers or even go bankrupt without the relief.

The new law offers relief to single-employer plans by allowing employers to “smooth” the value of pension plan assets over 24 months instead of being required to apply the mathematical average the Treasury requires. This change will have the effect of softening the accounting of 2008 plan losses.

The new law also helps multiemployer plans. They may choose to “freeze” their status as “endangered” or “critical” for one year. Remaining unchanged is the requirement that plans in endangered or critical status must adopt a funding improvement or rehabilitation plan, respectively. While a plan is in critical status, employers obligated to contribute must make additional contributions not required for plans in endangered status, but are relieved from the obligation to make general funding contributions. Under the new law, the election to freeze a plan’s status would delay the need to respond to any lack of progress under the terms of the funding improvement or rehabilitation plan until the following plan year.

Further, the new law provides an election for sponsors of multiemployer plans in endangered or critical status in plan years beginning in 2008 or 2009, allowing a three-year extension of a funding improvement or rehabilitation plan. That allows these plans more time to accomplish their goals.

The new law also temporarily suspends the requirement for 2009 that taxpayers age 70 1/2 and older and their beneficiaries must make annual minimum distributions from their retirement plan accounts. Those who did not were to be subject to a 50 percent penalty on the amount that should have been distributed. This waiver, 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 distribution allows retirees to keep the money in their account if they choose, and possibly recover some losses.

© 2008 Ott & Associates Co., LPA

Contact Us | Directions