WORKER, RETIREE, AND EMPLOYER RECOVERY ACT OF 2008

TITLE I -- TECHNICAL CORRECTIONS RELATED TO THE PENSION PROTECTION ACT (PPA) OF 2006


Technical Corrections Related to Pension Protection Act (PPA) of 2006

• Employer funding requirements includes funding for administrative expenses that are paid out of the plan and include any salary increases awarded during the year
• If a pension plan does not value its assets on the last day of the calendar year, then the Secretary of the Treasury may prescribe rules on how plans using other dates shall value their assets
• The Treasury Department has the authority to prescribe disclosure rules for multiemployer plans instead of the Department of Labor
• Lump sum distributions of $5000 or less can be paid, even if an underfunded plan is otherwise prohibited from paying lump sums
• Clarifies that the clock starts running for a multiemployer plan to agree on a funding improvement plan 180 days after the collective bargaining agreement expires
• The failure to pay delinquent multiemployer contributions is subject to a DOL penalty
• Defines who is the plan sponsor in a multiemployer plan
• Strikes duplicative provisions on information to be included in participant benefit statements
• Multiemployer plans must disclose information provided by their investment managers but may not disclose individually identifiable information
• Employers in multiemployer plans must separately retain pension plan information
• Defines a one-person retirement plan
• Permits employers to have restrictions on selling employer stock for period under 3 days if the employer complies with the fiduciary requirements applicable to restrictions greater than 3 days
• Cash balance plans may not credit accounts with less than zero in any year
• Cash balance vesting rules apply to hours of service after June 29, 2005
• Hybrid defined benefit-defined contribution plans have to both be terminated separately
• Clarifies how Railroad Retirement spousal annuity payments are made.

All of the other technical provisions are nominal changes of errors made in the original PPA 2006 legislation. There also are provisions that solely involve technical errors to the Internal Revenue Code and not ERISA.

Other Provisions

Public pension plans that offer “hybrid” individual account designs may use above market interest rates without violating the Age Discrimination in Employment Act: PPA gave Treasury authority to determine a “market interest rate” for hybrid pension plans and EEOC is required to rely on those rules for determining ADEA compliance. However, Treasury only has authority over private plans, not public plans in this area. The public plans are concerned that Treasury will issue rules that do not accept public plan practices and EEOC will be hamstrung by their interpretation. Therefore, the public plans have asked for language making clear that public plan use of above market interest rates is not a per se ADEA violation.

Permit pension plans that offer lump sums to use an interest rate assumption of 5.5%: This is a small plan issue where the owner is usually the major participant. Many small business owners will not set up a plan if they do not know in advance how much of a pension they will get from it. This change permits plans to guarantee a fixed interest rate. Although this primarily is an “owner” issue, it hopefully benefits their employees too because many employers wouldn’t offer a plan to their employees unless the owner benefited too.

Rollover of amounts received in airline bankruptcy to Roth IRAs: Airline workers whose defined benefit pension plan was terminated or frozen as a result of bankruptcy (filed after September 11, 2001 and prior to January 1, 2007) would be allowed to rollover bankruptcy payments intended to replace lost retirement income to a Roth IRA.

“Smoothing” of asset valuation for commercial airlines: Airlines whose plans have been frozen will be allowed to “smooth” the value of their pension plan assets.

Treatment of reimbursements from governmental plans for medical care: A plan established by a State or local government to reimburse certain medical care expenses incurred by State or local government employees on a tax-free basis shall not lose this favorable tax treatment just because the plan provides for reimbursements of medical expenses incurred by a deceased plan participant’s non-spouse/non-dependent beneficiary.

TITLE II – PENSION PROVISIONS RELATING TO THE ECONOMIC CRISIS

Taxpayer Relief

One-year suspension of the required minimum distribution (RMD): The bill would place a one-year moratorium on the RMD for 2009. This suspension is available to everyone regardless of their total retirement account balances.

Relief for single-employer plans

Allow pension plans to “smooth” out their unexpected asset losses: The bill permits employers to “smooth” the value of pension plan assets over 24 months instead of having to apply the mathematical average that Treasury requires.  This change will soften the accounting of 2008 plan losses.

Adjust the transition to the new funding rules: PPA phases in full pension funding targets from 90% to 100% over 5 years (2008 – 92%, 2009 – 94%, 2010 – 96%, 2011 – 98%, 2012 – 100%). If a plan misses its target in a phase-in year, then the target automatically increases to 100%. The bill adjusts the “phase-in” rule to allow plans which miss their phase-in funding target to retain the same target and not jump to the 100% target. For example, plans that are less than 92% funded in 2008, their shortfall would be estimated relative to 92%, not 100%. With a sizable number of plans below 92% funded next year, the adjustment of this phase-in rule could provide significant relief.

Worker protections

Temporary change of the limitation on benefit accruals. For purposes of staving off restrictions on benefit accruals as a result of being < 60% funded, plans would be able to look back to the previous plan year to determine their funded status as it would apply to workers’ ability to accrue benefits.

Relief for multi-employer plans

Plans may elect to “freeze” their plans’ status for one year: For plans starting between October 1, 2008 and October 1, 2009, multi-employer plans may elect to freeze their current funding status based on the previous year’s level. This would freeze the terms of the funding improvement or rehabilitation plan adopted at any time during the previous plan year.

Plans may elect to extend correction periods: Plans generally must bring their funded position up to statutory standards within a correction period (10 years or 15 years). This structure aims at enabling stakeholders in troubled plans to phase in the higher contributions or deeper benefit cuts over a period of time. Plans may elect a 3-year extension of the current funding improvement or rehabilitation period, from 10 to 13 years and from 15 to 18 years. Election of this extended correction period would help offset 2008 equity losses.