- New Law Provides Pension Funding Relief and Other Measures in Response to Economic Crisis
- January 28, 2009 | Authors: William J. Flanagan; Thomas P. Gies
- Law Firm: Crowell & Moring LLP - Washington Office
The Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA") ( H.R. 7327, Pub. Law 110-458), which passed both the House and the Senate unanimously, was signed into law by President Bush on December 23, 2008. WRERA makes numerous technical corrections to the Pension Protection Act of 2006 ("PPA") and also contains several sections providing specific pension-related relief in response to the current economic crisis. In general, the economic-relief provisions are designed to provide plans and participants with methods for dealing with large losses to plan accounts or plan assets due to the market turbulence of 2008. Although many of the provisions of WRERA are highly technical or industry-specific, and many of the technical corrections to the PPA do little more than add missing definitions and clarify drafting mistakes in the PPA, there are several provisions of WRERA, as described below, that will have broader impact.
The most significant provision of WRERA amends the Required Minimum Distribution ("RMD") rules as they pertain to certain plans. Under current law, a participant in a tax-qualified retirement plan generally must begin to receive specific payment amounts from the plan (i.e., the RMD) by April 1 of the calendar year following the later of the calendar year in which the participant actually retires or else reaches age 70-1/2. WRERA provides an exception to this rule, so that no minimum distribution is required for calendar year 2009 from individual retirement plans and defined contribution plans. The next required minimum distribution would be for calendar year 2010. In addition, WRERA permits (but does not require) plans to allow participants to roll over amounts distributed during 2009 that would otherwise have been Required Minimum Distributions, thereby mitigating adverse tax consequences from the distribution. The RMD provisions of WRERA are intended to allow participants to leave account balances untapped for one year, so that account values have time to recover and distributions will not begin during a period when accounts have been rocked by losses due to market instability. Notably, Congress did not provide any relief for calendar year 2008, and the IRS has stated publicly that it will not offer any such relief either. As a result, participants who were required to take distributions made during 2008 will not be helped by WRERA.
Another important provision provides that rollovers will now be allowed from a "Roth designated account" in a tax-qualified retirement plan (such as a Roth 401(k) account) to a Roth IRA. Previously, such a rollover would have been treated as a taxable event, resulting in the employee attempting the rollover potentially being subject to tax on the rollover amount (except to the extent it represented a return of after-tax contributions). Notably, this change, unlike many of the provisions in WRERA, is not a temporary provision, so such rollovers will be allowed for all years going forward.
Other provisions of note in WRERA, including provisions affecting multiemployer defined-benefit plans in Endangered or Critical Status, are described below.
ADDITIONAL PROVISIONS OF NOTE IN WRERA
WRERA contains several provisions of note affecting single-employer defined-benefit plans, including the following:
- A provision that allows plans to do a "smoothing" calculation of asset gains and losses, averaging such gains and losses over a 24-month period.
- A provision which allows transition relief for 2008 on the estimation of funding shortfalls which trigger required quarterly contributions.
- A provision clarifying and expanding the reach of a transition minimum funding rule, permitting plans that fall below the phase-in funding targets in the PPA to take advantage of PPA's transitional rule.
- A provision that temporarily suspends limits on benefit accruals for participants in underfunded plans.
WRERA also contains several provisions of note affecting multiemployer defined-benefit plans, particularly those plans that are either in Endangered ("Yellow Zone") or Critical ("Red Zone") status, including:
- A provision that allows the plan sponsor, for plan years beginning during the period from October 1, 2008 through September 30, 2009, to elect to treat the plan's status as the same as the plan's status for the preceding plan year. For example, if a calendar-year plan was not in endangered or critical status in 2008, it may elect to retain its non-critical and non-endangered status for 2009. If a plan elects to retain its endangered or critical status, it is not required to update its funding improvement plan or rehabilitation plan until the plan year that follows the applicable plan year.
- A provision that allows plan sponsors to extend the plan's funding improvement or rehabilitation period by three years, i.e., from 10 years to 13 years.
- A provision which states that plan trustees are required to implement the default schedule for a funding improvement plan or rehabilitation plan within 180 days of the expiration date of the collective bargaining agreement (removing the rule under the PPA that the default schedule is implemented upon the date on which the Department of Labor certifies that the parties are at impasse). Notably, this provision also clarifies that any failure to make a default schedule contribution is enforceable under section 515 of ERISA in the same manner as is the failure to make any contributions required by a collective bargaining agreement.
- A provision that clarifies that the multiemployer pension plan information that must be provided to employers upon request under section 101(k) of ERISA does not have to be redacted to prevent the multiemployer plan from disclosing the identities of the investment managers or advisors, or any other person preparing a financial report (other than an employee of the plan), whose performance is being reported on or evaluated.
- A provision that repeals section 4221(e) of ERISA, clarifying that an employer's request under section 101(l) of ERISA for an estimate of withdrawal liability must be provided without charge.
Finally, WRERA also contains several provisions that are more broadly applicable to a variety of plans, including:
- A provision clarifying that plans that are not subject to Title I of ERISA are not subject to the blackout notice provisions of the Sarbanes-Oxley Act.
- A provision that provides that, for plan years beginning after December 31, 2009, rollovers by nonspouse beneficiaries are generally subject to the same rules as other eligible rollovers.