The Pension Protection Act Blog » Legislation

List of Expiring Tax Code Provisions

Administrator — Wed, 11 Mar 2009 22:13:17 +0000

The Joint Committee on Taxation has released a list of tax code provisions which expire between 2008 and 2020. This list contains a number of items which relate to qualified plans and IRAs. Specifically, as stated on the list:

Provisions Expiring in 2009:

47. Allowance of additional IRA contributions in certain bankruptcy cases (sec. 219(b)(5)(C)). Expires 12/31/09

49. Waiver of minimum required distribution rules for IRAs and defined contribution plans (sec. 401(a)(9)(H)). Expires 12/31/09. The waiver also applies to minimum required distributions for 2009 required to be made by April 1, 2010.

50. Tax-free distributions from individual retirement plans for charitable purposes (sec. 408(d)(8)). Expires 12/31/09.

70. Use of single-employer defined benefit plan’s prior-year adjusted funding target attainment percentage to determine application of limitation on benefit accruals (sec. 203 of Pub. L. No. 110-458). Expires 12/31/09. The provision applies to the first plan year that begins during the period beginning on October 1, 2008 and ending on September 30, 2009.

71. Delay of designation of multiemployer plans as in endangered or critical status (sec. 204 0f Pub. L. No. 110- 458). Expires 12/31/09. The provision applies to the first plan year that begins during the period beginning on October 1, 2008 and ending on September 30, 2009.

72. Extension of funding improvement and rehabilitation periods for certain multiemployer pension plans (sec. 205 of Pub. L. No. 110-458). Expires 12/31/09. The provision applies to plan years beginning during 2008 and 2009.

73. Refundable credit for government retirees (sec. 2202 of Pub. L. No. 111-5). Expires 12/31/09

Provisions Expiring in 2010:

1. Provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001. (Pub. L. No. 107-16). Expires 12/31/10. The sunset applies to all EGTRRA provisions otherwise in effect on the expiration date. Pub. L. No. 107-358 repealed the sunset contained in EGTRRA with respect to the exclusion from Federal income tax for restitution received by victims of the Nazi Regime. The Pension Protection Act of 2006, Pub. L. No. 109-280, repealed the sunset contained in EGTRRA with respect to the pension and IRA provisions contained in subtitles A through F of title VI of EGTRRA and with respect to the qualified tuition program provisions in section 402 of EGTRRA.

25. Parity for exclusion for employer-provided mass transit and parking benefits (sec. 132(f)). Expires 12/31/10.

36. Computer technology and equipment allowed as a qualified higher education expense for section 529 accounts (sec. 529(e)(3)(A)(iii)). Expires 12/31/10.

Provisions Expiring in 2013:

7. Transfer of excess pension assets to retiree health accounts (sec. 420(b)(5)). Expires 12/31/13.

Provisions Expiring in 2014:

4. Automatic amortization extension for multiemployer defined benefit pension plans (sec. 431(d)(1)(C)). Expires 12/31/14. A corresponding provision is contained in section 304(d)(1)(C) of ERISA that also expires on December 31, 2014.

5. Additional funding rules for multiemployer defined benefit pension plans in endangered or critical status (sec. 432, and sec. 221(c) of Pub. L. No. 109-280). Expires 12/31/14. A corresponding provision is contained in section 305 of ERISA that also expires on December 31, 2014.

6. Deemed approval of adoption, use or cessation of shortfall funding method for multiemployer defined benefit pension plans (secs. 201(b) and 221(c) of Pub. L. No. 109-280). Expires 12/31/14.

[tag]pension protection act, ppa, joint committee on taxation, jct, ERISA[/tag]

And The Lilly Ledbetter Litigation Begins

Administrator — Thu, 12 Feb 2009 03:20:37 +0000

It took just 8 days for the ERISA-related litigation over the Lilly Ledbetter Fair Pay Act of 2009 to begin. When President Obama signed the Lilly Ledbetter Act into law on January 29, 2009, it was heralded among the non-ERISA community as creating a new world of equal pay for equal work. Among the ERISA-related community, it was heralded as an asteroid the size of Texas headed directly at the plan universe.

This is because: (1) one of the major components of defined contribution and defined benefits plans is compensation; (2) one of the major components of defined benefit and cash balance plan litigation is the Age Discrimination in Employment Act of 1967 (ADEA); and (3) the Lilly Ledbetter Act amended Section 7(d) of the Age Discrimination in Employment Act of 1967 (29 U.S.C. 626(d)) by adding Section 7(d)(3), which states:

“(3) For purposes of this section, an unlawful practice occurs, with respect to discrimination in compensation in violation of this Act, when a discriminatory compensation decision or other practice is adopted, when a person becomes subject to a discriminatory compensation decision or other practice, or when a person is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice.”

On February 6, 2009, eight days after Ledbetter became law, Wayne Tomlinson, the plan participant who brought a lawsuit against El Paso and the El Paso Pension Plan over the conversion of the El Paso Pension plan from a defined benefit plan to a cash balance plan, filed a motion to alter or amend the court’s decision granting summary judgment to El Paso and the El Paso Pension Plan. Specifically, Mr. Tomlinson is asking the court to alter or amend its decision of January 21, 2009, which held that his charge of age discrimination was untimely based on the U.S. Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007). Since the Lilly Ledbetter Act was designed to rectify that Supreme Court decision, Mr. Tomlinson is asking the U.S. District Court for the District of Colorado to reconsider the decision in his case.

Charlie Sullivan, a professor at Seton Hall Law School, has written a good analysis of whether Ledbetter is retrospective or prospective. (hat tip to Prof. Richard Bales of the Workplace Prof Blog)
[tag]pension protection act, ppa, Lilly Ledbetter, El Paso, Tomlinson, cash balance, ADEA, ERISA[/tag]

Senate Passes Lilly Ledbetter Act Addressing Discriminatory Compensation

Administrator — Fri, 23 Jan 2009 03:12:54 +0000

The Senate has approved S. 181, the Lilly Ledbetter Fair Pay Act of 2009, by a vote of 61-36. This bill has already passed the House and now heads to President Obama for his signature.

This Act is interesting for retirement and pension plans because it addresses the U.S. Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007) by amending Section 706(e) of the Civil Rights Act of 1964 to add the following:

“(3)(A) For purposes of this section, an unlawful employment practice occurs, with respect to discrimination in compensation in violation of this title, when a discriminatory compensation decision or other practice is adopted, when an individual becomes subject to a discriminatory compensation decision or other practice, or when an individual is affected by application of a discriminatory compensation decision or other practice, including each time wages, benefits, or other compensation is paid, resulting in whole or in part from such a decision or other practice.

`(B) In addition to any relief authorized by section 1977A of the Revised Statutes (42 U.S.C. 1981a), liability may accrue and an aggrieved person may obtain relief as provided in subsection (g)(1), including recovery of back pay for up to two years preceding the filing of the charge, where the unlawful employment practices that have occurred during the charge filing period are similar or related to unlawful employment practices with regard to discrimination in compensation that occurred outside the time for filing a charge.”

What this means when calculating allocations which are based on compensation is unclear. Because this Act is designed to address discrimination in compensation, and it doesn’t mention changes in allocations due to a change in the amount of compensation, some clarification from the IRS will be needed.

[tag]pension protection act, ppa, Lilly Ledbetter, Senate, compensation, ERISA[/tag]

Required Minimum Distribution Relief for 2009 Clarified

Administrator — Tue, 23 Dec 2008 01:49:52 +0000

The Dept. of Treasury has informed Congress that the IRS has determined that any further change to the required minimum distribution rules should not be undertaken. This surprising news was contained in a letter sent by the Assistant Secetary for Legislative Affairs Kevin Fromer to Congressman George Miller, Chairman of the Committee on Labor and Education on December 17, 2008. (hat tip to BenefitsLink.com)

This is noteworthy because a debate has been raging for a number of years that the required beginning date for required minimum distributions should be the April 1st of the calendar year following the later of the calendar year in which the employee attains age 75 or the calendar year in which the employee retires. Increasing the RMD age to 75 would add 4.5 years to the current rule contained in Code section 401(a)(9)(C)(i), which states that the required beginning date is the April 1st of the calendar year following the later of the calendar year in which the employee attains age 70.5 or the calendar year in which the employee retires.

One of the concepts behind the RMD rules was that retirement accounts should provide funds for retirement, not a way to transfer wealth to beneficiaries after death. The idea was that by forcing participants to start taking distributions by the April 1st of the calendar year following the later of the calendar year in which the employee attains age 70.5 or the calendar year in which the employee retires, money would flow out of retirement accounts and back into circulation during a participant’s lifetime.

What this concept missed was that age 70.5 is just not as old as it used to be, and that in a down economy, no participant should be forced to take distributions out of their account if doing so means selling at a loss. With recovery from the recent economic downturn expected to take several years, it seemed that changing the current RMD age from 70.5 to 75 would finally have some traction. Maybe the stock market will fully recover in the 12 months. Or maybe there will be another emergency bill headed through Congress next year with another new subparagraph 401(a)(9)(H) granting another one year extension.

The other news is that the letter clarifies the timing of the change to the required minimum distribution rules made by the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA ’08). The letter states:

“Thus, all individuals who are subject to required minimum distributions for 2008 should take their distribution under the existing rules and, as a result of relief provided by Congress, they will be entitled to a complete waiver of the requirement to take any distributions for 2009.”

The change to Code section 401(a)(9) made by WRERA ’08 added new subsection H, which states:

“(H) Temporary Waiver of Minimum Required Distribution –

(i) In General. The requirements of this paragraph shall not apply for calendar year 2009 to –

(I) a defined contribution plan which is described in this subsection or in section 403(a) or 403(b),
(II) a defined contribution plan which is an eligible deferred compensation plan described in section 457(b) but only if such plan is maintained by an employer described in section 457(e)(1)(A), or
(III) an individual retirement plan.

(ii) Special Rules Regarding Waiver Period. For purposes of this paragraph –

(I) the required beginning date with respect to any individual shall be determined without regard to this subparagraph for purposes of applying this paragraph for calendar years after 2009, and
(II) if clause (ii) of subparagraph (B) applies, the 5-year period described in such clause shall be determined without regard to calendar year 2009.

The effective date for this change applies to calendar years beginning after December 31, 2008.

[tag]pension protection act, ppa, IRS, RMD, required minimum distribution, 401(a)(9), WRERA, ERISA[/tag]

Senate Passes Bailout Bill Loaded with Tax Provisions Including Bicycle Commuting Reimbursement

Administrator — Thu, 02 Oct 2008 15:35:26 +0000

Yesterday, the Senate passed their version of the Bailout Bill. One item contained in the bill which caught my eye was a change to Code section 132(f) which will cause an almost immediate revision to our Qualified Transportation plan. As a bicycle commuter for over 30 years, I appreciate this tax credit. As a pension geek, I am really wondering why the Senate felt that qualified bicycle commuting reimbursements were needed to stabilize the nation’s financial system.

Section 211 of the Senate Bailout bill states:

“(a) In General- Paragraph (1) of section 132(f) is amended by adding at the end the following:

`(D) Any qualified bicycle commuting reimbursement.’.

(b) Limitation on Exclusion- Paragraph (2) of section 132(f) is amended by striking `and’ at the end of subparagraph (A), by striking the period at the end of subparagraph (B) and inserting `, and’, and by adding at the end the following new subparagraph:

`(C) the applicable annual limitation in the case of any qualified bicycle commuting reimbursement.’.

(c) Definitions- Paragraph (5) of section 132(f) is amended by adding at the end the following:

`(F) DEFINITIONS RELATED TO BICYCLE COMMUTING REIMBURSEMENT-

`(i) QUALIFIED BICYCLE COMMUTING REIMBURSEMENT- The term `qualified bicycle commuting reimbursement’ means, with respect to any calendar year, any employer reimbursement during the 15-month period beginning with the first day of such calendar year for reasonable expenses incurred by the employee during such calendar year for the purchase of a bicycle and bicycle improvements, repair, and storage, if such bicycle is regularly used for travel between the employee’s residence and place of employment.

`(ii) APPLICABLE ANNUAL LIMITATION- The term `applicable annual limitation’ means, with respect to any employee for any calendar year, the product of $20 multiplied by the number of qualified bicycle commuting months during such year.

`(iii) QUALIFIED BICYCLE COMMUTING MONTH- The term `qualified bicycle commuting month’ means, with respect to any employee, any month during which such employee–

`(I) regularly uses the bicycle for a substantial portion of the travel between the employee’s residence and place of employment, and

`(II) does not receive any benefit described in subparagraph (A), (B), or (C) of paragraph (1).’.

(d) Constructive Receipt of Benefit- Paragraph (4) of section 132(f) is amended by inserting `(other than a qualified bicycle commuting reimbursement)’ after `qualified transportation fringe’.

(e) Effective Date- The amendments made by this section shall apply to taxable years beginning after December 31, 2008.”

[tag]pension protection act, ppa, senate, bailout, HR 1424, bicycle commuting, qualified transportation, 132(f), ERISA[/tag]

Loans from Qualified Plans Generating Unprecedented Buzz

Administrator — Tue, 22 Jul 2008 03:28:43 +0000

With the economy headed south, or already at rock bottom, depending upon where you live, it is not surprising that participants are borrowing from their retirement plans. What is surprising is the amount of buzz suddenly appearing in the popular media on this topic. Since most of the public seems to actively ignore ERISA unless they are divorcing, retiring, or changing jobs, I was a little surprised to see articles about plan loans in both the Washington Post and the New York Times over the weekend.

In the Washington Post on Sunday, reporter Michelle Singletary writes about Raiding the Retirement Stash, discussing the variety of issues regarding participants borrowing from their 401(k) plans. In that article, Ms. Singletary mentions both a recommendation from the Pension Rights Center that loans should be prohibited by Congress as well as a study by the Center for American Progress finding that participants are borrowing from their 401(k) plans as the only stash of cash they have access to when they have reached rock bottom.

In the New York Times on Saturday, reporter Ron Lieber wrote about New Proposed Legislation on 401(k) Debit Cards. In his article, he publishes conversations he had with both Senator Charles Schumer (D. NY) and the founder and chairman of Reserve Solution’s parent company, The Reserve. Reserve Solution’s is the company offering debit cards to participants so they can access their 401(k) loan via ATMs or merchants who accept Visa. Senator Shumer is the sponsor of S.3278, the bill to amend the Internal Revenue Code to prohibit loans from qualified plans using a credit card or other intermediary which he introduced on July 17, 2008. A copy of the bill was not available as of today.

Senator Schumer’s comments in the New York Times that participants and beneficiaries should be prohibited from having debit card access to their plan loans because 401(k) plans should be not available for impulse spending makes me wonder if Senator Schumer read the Washington Post on Sunday.

[tag]pension protection act, ppa, S.3278, Senator Schumer, ERISA, loans, 401(k)[/tag]

Another Corrections Act to the Pension Protection Act Passes the House

Administrator — Fri, 11 Jul 2008 04:30:20 +0000

On Wednesday, the House of Representatives passed another Pension Protection Technical Corrections Act of 2008 by voice vote. This act, H.R. 6382, now heads to the Senate, where the last Pension Protection Technical Corrections Act of 2008, H.R. 3361, has been languishing since March 31, 2008. The Senate, which has already passed its version of the Pension Protection Technical Corrections Act of 2007, S.1974, can take up either version of these Acts from the House, or can create its own version.

Out of curiousity over what would have compelled the House of Representatives to pass a second Pension Protection Technical Corrections Act of 2008, I compared to two Acts to find the differences. The only differences between the Acts are in the last few pages in the section on Title II – Other Provisions.

The new sections of the PPTCA of 2008 are Section 201, which amends Sections 102 and 112 of PPA by adding the last sentence of section 303(g)(3)(B) of ERISA to state:

“Any such averaging shall be adjusted for contributions, distributions, and expected earnings (as determined by the plan’s actuary on the basis of an assumed earnings rate specified by the actuary but not in excess of the third segment rate applicable under subsection (h)(2)(C)(iii)), as specified by the Secretary of the Treasury.”

The last sentence of section 430(g)93)(B) is amended to read as follows:

The effective date for these two changes is that they will take effect as if included in the provisions of PPA to which the amendments relate, which is Congressional speak for everyone pretending that these two sentences are to be treated as if they were originally contained in Sections 102 and 112 of PPA.

The new version of PPTCA of 2008 modifies the interest rate assumption required with respect to certain small employer plans effective for years beginning after December 31, 2007. It amends section 415(b)(2) by adding this new clause at the end of Subparagraph (E):

‘‘(vi) In the case of a plan maintained by an eligible employer (as defined in section 408(p)(2)(C)(i)), clause (ii) shall be applied without regard to subclause (II) thereof.’’

Also included are changes to determining the market rate of return for governmental plans, the treatment of certain reimbursements from governmental plans for medical care, the rollover of amounts received in airline carrier bankruptcy to Roth IRAs, and the modification of the penalty for failure to file tax returns for partnerships and S corps.

[tag]pension protection act, ppa, 415(b)(2), PPTCA, Pension Protection Technical Correction Act, 303(g)(3), ERISA[/tag]

Rollovers to NonSpouse Beneficiaries Are Back With Passage of H.R. 3361 But For 2009 Instead of 2008

Administrator — Wed, 19 Mar 2008 02:58:39 +0000

A little over a year ago, I started this blog to keep track of my notes about the Pension Protection Act. One of my first posts was about rollovers to nonspouse beneficiaries. One year and 126,210 visitors later, rollovers to nonspouse beneficiaries remain a hot topic.

Last week, the House of Representatives finally passed H.R. 3361, the Pension Protection Technical Corrections Act of 2008 (PPTCA). Since the Senate passed their version of the PPTCA, S. 1974, late last year, the Senate should make quick work of reconciling the differences between their bill and H.R. 3361, and have a version of PPTCA ready for the President to sign as early as mid-April.

For rollovers to nonspouse beneficiaries, the passage of H.R. 3361 has significant impact because of the IRS’ position on rollovers to nonspouse beneficiaries. In the 2007 List of Interim and Discretionary Amendments, the IRS included this statement:

§ 402(c)(11) [Discretionary]: PPA ’06 § 829(a)(1) added § 402(c)(11) to allow nonspouse beneficiaries to roll over distributions from a qualified plan to an individual retirement plan. Nonspouse beneficiary rollovers are an optional plan provision for 2007. See, Notice 2007-7. Pursuant to an impending technical correction, nonspouse beneficiary rollovers will be required for plan years beginning on or after January 1, 2008. See, section 9(e) of S. 1974, the Pension Protection Technical Corrections Act of 2007, as introduced in the Senate on August 2, 2007 and section 9(e) of H.R. 3361, the Pension Protection Technical Corrections Act of 2007, as introduced in the House of Representatives on August 3, 2007.

The version of PPTCA that this paragraph of the 2007 List of Interim and Discretionary Amendments referenced was the Introduced version in the House. Section 9(e) of that version of H.R. 3361 stated:

(e) Amendments Related to Section 829-

(1) Section 402(c)(11) of the 1986 Code is amended–

(A) by inserting `described in paragraph (8)(B)(iii)’ after `eligible retirement plan’ in subparagraph (A), and

(B) by striking `trust’ before `designated beneficiary’ in subparagraph (B).

(2)(A) Section 401(a)(31)(D) of the 1986 Code is amended by adding at the end the following new sentence: `Such term shall include any distribution which is treated as an eligible rollover distribution by reason of section 402(c)(11), 403(a)(4)(B), 403(b)(8)(B), or 457(e)(16)(B).’

(B) The amendment made by subparagraph (A) shall apply with respect to plan years beginning after December 31, 2007.

In the Engrossed version of PPTCA, which passed the House last week, the applicability date changed from December 31, 2007, to December 31, 2008. Section 9(f) of H.R. 3361 now states:

(f) AMENDMENTS RELATED TO SECTION 829.—

(1) Section 402(c)(11) of the 1986 Code is amended—

(A) by inserting ‘‘described in paragraph (8)(B)(iii)’’ after ‘‘eligible retirement plan’’ in subparagraph (A), and

(B) by striking ‘‘trust’’ before ‘‘designated beneficiary’’ in subparagraph (B).

(2)(A) Section 402(f)(2)(A) of the 1986 Code is amended by adding at the end the following new sentence: ‘‘Such term shall include any distribution to a designated beneficiary which would be treated as an eligible rollover distribution by reason of subsection (c)(11), or section 403(a)(4)(B), 403(b)(8)(B), or 457(e)(16)(B), if the requirements of subsection (c)(11) were satisfied.’’

(B) Clause (i) of section 402(c)(11)(A) of the 1986 Code is amended by striking ‘‘for purposes of this subsection’’.

(C) The amendments made by this paragraph shall apply with respect to plan years beginning after December 31, 2008.

Reconciling Section 9(f) of H.R. 3361 with Section 9(e) of the Engrossed version of S. 1974 should go smoothly, as Section 9(e) of S. 1974 states:

(e) AMENDMENTS RELATED TO SECTION 829.—

(1) Section 402(c)(11) of the 1986 Code is amended—

(A) by inserting ‘‘described in paragraph (8)(B)(iii)’’ after ‘‘eligible retirement plan’’ in subparagraph (A), and

(B) by striking ‘‘trust’’ before ‘‘designated beneficiary’’ in subparagraph (B).

(2)(A) Section 402(f)(2)(A) of the 1986 Code is amended by adding at the end the following new sentence: ‘‘Such term shall include any distribution which is treated as an eligible rollover distribution by reason of section 403(a)(4)(B), 403(b)(8)(B), or 457(e)(16)(B).’’

(B) Clause (i) of section 402(c)(11) of the 1986 Code is amended by striking ‘‘for purposes of this subsection’’.

(C) The amendments made by this paragraph shall apply with respect to plan years beginning after December 31, 2008.

[tags]Pension Protection Act, PPA, IRS, HR 3361, S 1974, Pension Protection Technical Corrections Act, rollovers, nonspouse beneficiaries, ERISA[/tags]

House of Representatives Moves Forward on Pension Protection Technical Corrections Act

Administrator — Fri, 14 Mar 2008 21:16:22 +0000

In a surprise move, the House of Representatives passed the Pension Protection Technical Corrections Act, H.R. 3361, on March 12, 2008. The bill’s status is now engrossed as passed/agreed to in the House. The companion Senate bill, S.1974, was passed by the Senate in December, 2007.

It was a surprising move by the House because the bill had not had much activity since being introduced on August 3, 2007, and was not expected to pass the House until later this year, if at all. I will have a more in-depth analysis of the exact provisions in the bill coming up later today. The Pension Protection Technical Corrections Act as introduced in the House contained a number of provisions which require analysis to determine if they survived to the final version of the House bill.

For example, plans were required to adopt an amendment for the changes made by the Pension Funding Equity Act (PFEA) by the last day of the first plan year beginning on or after January 1, 2006. Section 301 of the Pension Protection Act extended this deadline to the last day of the first plan year beginning on or after January 1, 2008. Section 4(a) of S. 1974, and Section 4(a) of H.R. 3361 (as introduced) extended the deadline to the last day of the first plan year beginning on or after January 1, 2009. It is these types of changes which require a thorough analysis of the bill as engrossed.

[tags]Pension Protection Act, PPA, House of Representatives, HR 3361, S 1974, Pension Protection Technical Corrections, Pension Funding Equity Act, PFEA, ERISA[/tags]

Shuttle Launch Tonight

Administrator — Tue, 11 Mar 2008 00:08:16 +0000

What does a Shuttle launch have in common with the Pension Protection Act – really nothing except that I live and work directly across from the Kennedy Space Center, so tonight is devoted to non-ERISA/PPA related activity. Shuttle launches in general are amazing, and a night launch is really spectacular and not to be missed.

If you really need a little ERISA reading tonight, the Joint Committee on Taxation has released the Description of Revenue Provisions Contained in the President’s Fiscal Year 2009 Budget Proposal. (hat to Prof. Paul Caron of the Univ. of Cinti. Law School and the Taxprof Blog).

The first 30+ pages of the report are full of qualified plan proposals. The report is interesting reading but it will be September or October before the proposals with legs really start to grab my attention.