Before adjourning, Congress approved HR 7327, The Worker, Retiree and Employer Recovery Act . This legislation makes technical corrections to the Pension Protection Act of 2006 (PPA), and includes provisions that would ease pension-funding rules for companies and allow seniors a reprieve from required withdrawals from their tax-advantaged investment accounts.

The modification to pension distribution requirements for seniors is an important change that will help ease financial strain and maintain income security in the midst of the lagging economy.  To accomplish this goal, the bill suspends for one year an excise tax that is assessed on individuals 70 ½  and older who fail to take required minimum distributions from their retirement accounts, including individual retirement accounts (IRAs) and defined contribution pension plans (such as 401(k) plans).  

Specifically, the bill provides that no minimum distribution is required for calendar year 2009 from IRAs and defined contribution plans. The next required minimum distribution would be for calendar year 2010. This relief applies to life-time distributions to employees and IRA owners and after-death distributions to beneficiaries. For IRAs and defined contributions plans, the required minimum distribution for each year generally is based upon the account balance as of the end of the prior year. In this case, distributions required in 2009 would have been based upon account balances at the end of 2008, when markets have significantly dropped in value. By suspending the requirement for 2009, Congress has allowed seniors to avoid taking withdrawals from their retirement savings accounts while the market is down and not incur a tax penalty.

In addition to the minimum distribution provision, the bill would ease pension plan funding requirements imposed in the PPA that have become more burdensome than expected in light of the current financial crisis. Under the 2006 law, companies with defined-benefit plans that are not fully funded must enter into a process to reach fully-funded status. The current financial crisis and stock market plunge, however, have decimated the investments of many pension plans and lowered their funding percentages.  As a result, corporations contend that meeting the law's funding requirements now would take too much money from corporate budgets thus preventing companies from hiring and investing, and potentially inducing layoffs.

Government Relations & Policy, December 2008