Retirement-related Issues and Activities that Impact Public Employees

February 2009

RMD Suspension

The new law includes a provision of particular importance to many ICMA-RC participants – the suspension of the required minimum distribution (RMD) from retirement plans and IRAs for the 2009 tax year. Under the law, RMD payments (required for participants over age 70 ½) will not be required in 2009 from IRA accounts and defined contribution plans, including governmental 457(b) plans. However, the law does not eliminate the RMD requirements for 2008 even scheduled for distribution in 2009.

In January 2009, ICMA-RC began mailing letters to participants who are eligible to waive their RMD for 2009. Other communications included an article in our January ER Bulletin and alerts on EZLink and Account Access. In addition, we provided regular updates on our Legislative Web site as the RMD proposal moved through the legislative process, and added an FAQ once it became law.

In late December, Treasury considered, but ultimately rejected a proposal to alter the RMD rules for 2008 in recognition of the complexity of a retroactive provision. A similar proposal has since been circulated to Congress that would direct the Treasury to suspend the RMD for 2008.

Technical Corrections

A provision in the Technical Corrections to the PPA clarifies that retiree public safety employees covered by health plans that are self-insured qualify for a provision that allows for a $3,000 medical premium payment directly from their retirement plan. Also in the legislation is a provision to extend beneficiary coverage for Health Reimbursement Arrangements (HRAs) – but currently only for government HRAs that are funded by a medical trust and have been authorized by a state legislature or have received a favorable tax ruling from the IRS. It is our understanding that only two states qualify and it does not universally address the beneficiary issue.

HRA Beneficiary Fix

Legislation that would provide tax parity to all beneficiaries who qualify for and receive employer-provided health plan benefits is expected to be reintroduced in the House and Senate in the next few months. The HRA provision of this legislation would essentially fix the current beneficiary problem that exists with the RHS programs. Congressional support through new cosponsors continues to grow, thereby increasing its prospects for possible inclusion in a larger tax or health bill this Congress.

Roth 457 Arrangements

The proposal to allow state and local government 457 plans to offer a Roth feature in their plans was included in numerous legislative vehicles during the last Congress but never became law. We anticipate that it will be included as a revenue raiser again this Congress since it is estimated to raise about $1 billion if enacted. A Roth 457 feature would provide parity with private-sector plans that already have that feature and is generally supported by public-sector groups such as NAGDCA. We will continue to track this proposal in the new Congress.

Fee Disclosure

The absence of final regulations on any of the previous Administration’s fee disclosure proposals is likely to mean that House Education and Labor Committee Chairman George Miller (D-CA) will gain new momentum on 401(k) fee disclosure legislation. At a minimum, it is expected to mandate new fee disclosures from service providers to plan administrators and from plan administrators to plan participants as well as direct enforcement activity by the Department of Labor. Due to shared jurisdiction, the Ways and Means Committee will also likely consider any fee disclosure legislation and could extend it to government 457 plans. The two committees failed to reach a consensus on a bill last Congress.

Greater Role for Federal Reserve

Congress is likely to take action this year to boost the Federal Reserve’s (Fed) regulatory role, creating a super oversight agency. The legislation would put the Fed in charge of ensuring the stability of the entire financial system. As it stands now, despite the role of many federal agencies in regulating the financial industry, no single agency is responsible for understanding or containing the risks that are affecting the financial system. The House Financial Services Committee, led by Rep. Barney Frank (D-MA), is heading the effort, which has widespread support among elected officials, financial experts and industry groups.