Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
On Dec. 11, the Senate approved a bipartisan bill that is designed to ease the financial crisis for certain employees and businesses by, among other things, modifying pension distribution requirements. The Worker, Retiree, and Employer Recovery Act of 2008 (H.R. 7327), introduced in and passed by the House of Representatives on December 10th, also makes technical corrections to the Pension Protection Act of 2006 (PPA). The President is expected to sign the bill.
In essence, the bill would temporarily ease funding and distribution rules governing single and multi-employer pension plans and modify asset depreciation requirements, ostensibly to free up cash for payroll and other business expenses in light of the faltering economy. Some of the key bill provisions include:
- For single-employer pension plans:
- Permits temporary adjustment to contribution, distribution, and projected earnings provisions of the PPA;
- Gives these plans three years to phase in PPA pension funding target percentages.
- For multi-employer pension plans:
- Permits a freeze of plan funding status to provide time for economic recovery before declaration of critical or endangered status;
- Allows the election of a three-year extension of current amortization rules to help offset this year’s asset losses.
- For taxpayers:
- Eliminates minimum distributions for 2009 to provide time for IRAs and other benefit accounts to recover asset losses.
Although it is generally unusual for Congress to introduce new legislation so close to the end of a session, the current financial catastrophe has changed the rules of the game. Business interests have been actively lobbying Congress in recent weeks to pass some type of pension relief measure. Although these may be welcome changes, they will have little impact on economic recovery, and merely delay recognition of the impact of the severe investment losses suffered by retirement plans, particularly for the millions of participants in 401(k) plans and IRAs who have seen substantial erosion in their expected retirement assets. Regardless, defined benefit plan sponsors are still required to fund their defined benefit plans and are liable for any shortfall on plan termination and the Pension Benefit Guaranty Corporation still must provide back-up termination insurance to these plans.