Compliance News

May 2008

Incentive for Older Workers Act

On April 30, 2008, Senators Gordon H. Smith (R-OR), Herb Kohn (D-WI), and Kent Conrad (D-ND) introduced the Incentive for Older Workers Act. The proposed legislation is intended to provide incentives and eliminate barriers for older workers that want to stay in the workforce longer, and encourage employers to recruit and retain older workers.

Here are highlights of the proposed legislation.

• Prohibition of Benefit Reduction Due to Phased Retirement
• Average compensation used to calculate the benefit under a defined benefit plan may not be reduced for a participant’s service prior to the reduction in compensation. This applies to participants who:
  
  
  • Have attained age 50 or completed 30 years of service
  • Begin working a reduced number of hours or with modified responsibilities, and have reduced compensation.

Clarification of Normal Retirement Age

A defined benefit plan would be permitted to have a normal retirement age (NRA) that is the earlier of the attainment of:

• A specified age, or
• 30 years or more of benefit accrual service

The specified age must meet the IRS regulation on reasonable normal retirement ages that was finalized in 2007. Plans that meet this requirement do not fail to meet the backloading rules, and do not fail to have a uniform NRA solely because of using such a NRA.

Changes in Social Security Benefits

The following changes would apply in the payment of Social Security benefits:

• Individuals would receive increased Social Security benefits if they delay receiving Social Security benefits until age 72, instead of age 70 under current law.
• Individuals who continue working past their Social Security Retirement Age would lose $1 in benefits for every $3 earned above the exempt amount, instead of $1 for every $2 earned above the exempt amount under current law.

Miscellaneous Provisions

The proposed legislation also would:

• Create a National Resource Center on Aging and the Workforce within the Department of Labor to collect, organize, and disseminate older worker information.
• Require states to include at least one older worker on the state and local workforce investment boards.
• Expand eligibility for the Work Opportunity Tax Credit to include older workers. This program
  gives employers credits for wages for hiring individuals from nine targeted groups (such as
  recipients of public assistance, qualified veterans, and high risk youth).

Next Step

The Senate Aging Committee is likely to hold a hearing on the proposed legislation, but consideration by the full Senate is not expected this year. During the next several years, ways for companies to retain older workers will be a common topic for discussion in Congress.

 

Principal Life Insurance Company, Des Moines, Iowa 50392-0001, www.principal.com
Prepared by Retirement & Investor Services – Compliance.