The Worker, Retiree, and Employer Recovery Act of 2008 Becomes Law

January 06, 2009

With President Bush’s signature on December 23, 2008, The Worker, Retiree, and Employer Recovery Act of 2008 (H.R. 7327) became law. The legislation makes technical corrections to the Pension Protection Act that narrowly addresses beneficiaries for Health Reimbursement Arrangements (HRA). It also waives the 2009 Required Minimum Distribution (RMD) on employer-sponsored defined contribution plans and on IRAs

PPA Technical Corrections

• Clarifies that participants in plans that are self insured qualify for a provision that allows for a $3,000 medical premium payment directly from their retirement plan for retired public safety employees.
• Permits a certain class of governmental plans to include individuals other than a qualifying spouse or dependent as beneficiaries of employees' HRAs, but those beneficiaries must pay taxes on HRA amounts they ultimately receive. To qualify, the governmental HRA must be funded by a medical trust established in connection with a public retirement system and must have been authorized by a state legislature or have received a favorable tax ruling from the IRS.

Required Minimum Distribution (RMDs)

• The new law suspends minimum distribution requirements applicable to employer-sponsored retirement plans, including 401(k), 401(a), 457, 403(b) and IRAs, for the 2009 tax year. The change enables participants who would generally be subject to required minimum distributions (RMDs) in 2009 to suspend these payments.
• The change is intended to avoid forcing participants who have been negatively impacted by the recent economic downturn from being required to liquidate securities that have significantly declined in value.
• ICMA-RC will continue to distribute all previously scheduled 2009 installment payments to participants unless they request to have the payments stopped. However, participants over the age of 70½ who have not yet scheduled payments for 2009 will not receive any payments, unless requested. These participants may request distributions from their accounts at any time.

The law does not impact the RMD requirements for 2008, so participants who attain age 70½ in 2008 are still required to receive their first RMD payment by April 1, 2009. They may, however, waive their 2009 distribution.