| August
2009
Here is a short summary of new proposed legislation that has
been introduced in 2009 and is being considered by Congress.
Not all of the bills will become law; many could see no action
taken. Each bill is subject to extensive revision as it is
reviewed by Congress.
Protecting
Senior’s Nest Egg Act
Retirement
Account Distribution Improvement Act
These
two bills would extend the relief given under the Worker,
Retiree, and Employer Recovery Act of 2008 (WRERA) for required
minimum distributions. Under WRERA, minimum distributions
are not required for calendar year 2009 from IRAs and qualified
defined contribution (DC) plans. The bills further extend
the relief to 2010.
Savings
for American Families’ Future Act
Introduced
by Representative Earl Pomeroy (D-ND), this proposed legislation
would expand the current non-refundable Saver’s Credit
that is available to low and moderate-income savers. Changes
include:
- Expand
the number of individuals eligible for the credit by expanding
the income limits.
- Change
the tax credit to a refundable 50% match on the first $1,000
of retirement contribution ($500 for singles). Instead of
reducing the individual’s tax credit, the IRS would
deposit the tax credit into the individual’s retirement
account as a match.
- The
income limits and the limit on the match would be subject
to an annual cost-of-living increase.
Savings
Recovery Act
Introduced
by Representative John Boehner (R-OH), this proposed legislation
would help workers increase their retirement savings quickly
to make up for any loss of earnings. Changes include:
- Increase
the annual limit on elective deferral from $16,500 to $33,000
and catch-up contributions to $10,000 for 2009, 2010, and
2011.
- Extend
the relief from required minimum distributions through 2012.
- Permanently
increase the IRA contribution and catch-up limits to match
the employer-sponsored
plan limits.
- Provide
some funding relief for defined benefit plans:
- Expand
the smoothing corridor from 10% to 20% for 2009 and
2010.
- Require
interest payments only on 2008 losses in 2009 and 2010.
- Extend
the seven year amortization period for 2008 losses from
seven to nine years.
Individual
Recovery Assistance Act
Introduced
by Robert Latta (R-OH), this proposed legislation would give
individuals with specific financial hardship some relief from
penalties on distributions from qualified retirement plans.
- Waive
the 10% penalty on early withdrawal distributions if:
- The
distribution is used to make mortgage payments on a
primary residence, or
- The
distribution is to an unemployed individual who has
received unemployment compensation for 12 consecutive
weeks.
- Increase
the age at which the minimum distribution from qualified
retirement plans is required from age 70 ½ to age
75.
Retirement Security Needs Lifetime Pay Act
Introduced
by Representative Earl Pomeroy (D-ND), this proposed legislation
would encourage the use of guaranteed lifetime income payments
by excluding a portion of the payments from taxable income:
- 25%
of the taxable portion of lifetime annuity payments from
an IRA and certain qualified DC plans (annual maximum $5,000
for individuals, $10,000 for couples).
- 50%
of the taxable portion of lifetime annuity payments from
a nonqualified annuity (annual
maximum $10,000).
Proposed
Legislation on Disclosure and Investment Advice
A current “hot topic” in Washington is the disclosure
of plan fees and investment advice. Here is some of the pending
legislation on these issues:
Defined
Contribution Plan Fee Disclosure Act
Introduced
by Senators Tom Harkin (D-IA) and Herbert Kohl (D-WI), this
proposed legislation would expand the disclosure of fees by
employers and service providers of 401(k) and 403(b) plans.
It would require the following:
- A
service provider must furnish plan sponsors certain information
about fees and services before the plan sponsor contracts
for the services, and at least annually thereafter.
- A
sponsor of a 401(k) or 403(b) plan that allows participants
to direct investments must provide certain information on
plan investments and fees to participants before the beginning
of each plan year or before the date of any investment option
change.
- The
quarterly benefit statements given to participants must
include certain investment and fee information.
401(k)
Fair Disclosure for Retirement Security Act
Introduced
by Representative George Miller (D-CA), this proposed legislation
would require additional disclosure to plan sponsors and participants
of DC plans. Changes include:
- A
service provider must furnish plan sponsors certain information
about fees, services, and any conflicts of interest before
the plan sponsors contracts for the services.
- A
sponsor of a DC plan that allows participants to direct
investments and has chosen to comply with ERISA 404(c) must
provide certain information on plan investments and fees
to participants before the beginning of each plan year.
- Actual
or estimated fee charges must be included with the participant
quarterly benefit statements.
- DC
plans must include as an investment option at least one
low-cost balanced index fund.
Defined
Contribution Plan Fee Transparency Act
Introduced
by Representative Richard Neal (D-MA), this proposed legislation
would require additional disclosure to plan sponsors and participants
of DC plans that allow participants to direct investments
(including 401(k), 403(b), and governmental 457(b) plans).
Changes include:
-
At enrollment and at least annually thereafter, the plan
administrator must provide employees with investment and
plan fee information for each available investment option.
- Every
quarter, the plan administrator must provide participants
with information about the investments they have selected
and the fees applicable to their accounts.
- A
service provider must furnish plan sponsors certain information
about services, fees, and any revenue sharing before the
plan sponsors contracts for the services.
- Treasury
would be directed to develop model notices and guidance
on the disclosures.
Conflicted
Investment Advice Prohibition Act
Introduced
by Representative Rob Andrews (D-NJ), this proposed legislation
would replace the investment advice provisions in the Pension
Protection Act (PPA).
- A
plan fiduciary that wants to provide investment advice to
plan participants must arrange for an
“independent investment adviser” to provide
the advice.
- The
“independent investment adviser” requirement
may be met by use of a computer model that meets certain
requirements, or through a registered investment adviser,
a bank or similar financial institution, or a registered
representative.
- The
adviser must receive the same fees regardless of the investment
option chosen.
- The
bill includes a safe harbor for computer model arrangements
based on the “Sun America” opinion and for other
pre-PPA advisory opinions and prohibited transaction exemptions.
401(k) Fair Disclosure and Pension Security Act
The
House of Representatives Education and Labor Committee approved
this proposed legislation that combines the 401(k) Fair Disclosure
for Retirement Security Act and the Conflicted Investment
Advice Prohibition Act regarding plan fees and investment
advice in DC plans. The proposed legislation also includes
some funding relief for defined benefit plans that includes:
- Employers
can defer the amortization of their 2008 and 2009 plan year
losses (including investment losses) for two years. For
those two years, the minimum required contributions would
include only interest on the losses. The seven year amortization
of the losses would not begin until the end of the two years.
This is referred to as the “two plus seven”
rule.
-
Employers may revoke their election to use corporate bond
yield curve interest rates to determine the minimum required
contribution for the 2010 plan year, without obtaining IRS
approval first.
- The
final regulations for the funding requirements and benefit
restrictions will not be effective earlier than the 2010
plan year, and reasonable good faith compliance will apply
to years prior to the effective date.
- Plan
investment expenses are not a current-year cost. Therefore,
they can be amortized over seven years, the same as investment
losses.
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