WRERA 2008: Relief provisions for qualified plan sponsors
Tax Facts | National Underwriter Company
The Worker, Retiree, and Employer Recovery Act (WRERA) of 2008 was passed by both houses of Congress and was signed into law by President Bush on December 23, 2008.
WRERA 2008 provides a number of relief provisions for qualified plan sponsors and their beneficiaries and individual retirement arrangements. These include provisions for: required minimum distribution relief for 2009, special rules for Roth-to-Roth rollovers, and expansion of rollovers for nonspouse beneficiaries.
Required minimum distribution relief for 2009
WRERA 2008 provides some relief from the required minimum distribution (RMD) rules for distributions required from qualified plans and IRAs for calendar year 2009. The distribution that is required for calendar year 2009 can be waived. Also, the five-year period where the five-year rule applies is determined without regard to 2009. The 2009 relief rules apply to distributions from defined contribution plans, Section 403(a) and 403(b) defined contribution plans, governmental Section 457 defined contribution plans and IRAs.
Rot- to-Roth rollovers
In general, a qualified plan or IRA can be rolled over or converted to a Roth IRA in a taxable event. In the years before 2010, such a conversion is not permitted if the individual's gross income exceeds $100,000. However, the $100,000 adjusted gross income limitation does not apply after 2009. WRERA 2008 provides that a rollover from a Roth IRA or a designated Roth account to a Roth IRA is not subject to the adjusted gross income limitation and is not subject to tax.
Rollovers by nonspouse beneficiaries
A nonspouse beneficiary can roll over an inherited eligible retirement plan to an IRA created to receive the inherited eligible retirement plan in a direct trustee-to-trustee transfer. WRERA 2008 provides that, for plan years beginning after 2009, a rollover by a nonspouse beneficiary is generally treated like any other eligible rollover. Plans therefore would be required to permit such rollovers by nonspouse beneficiaries.
Temporary modification of benefit accrual limitations
A defined benefit plan must generally be funded to at least 60 percent of the assets needed to reach its funding target, or it may not allow future benefit accruals. WRERA 2008 provides that a plan may substitute the previous year's adjusted funding target attainment percentage for the plan year beginning between October 1, 2008 and September 30, 2009. So, if a plan's adjusted funding target attainment percentage for the calendar year of 2008 was over 60 percent, benefit accruals will still be allowed even if the percentage dropped below 60 percent in calendar year 2009.
Funding shortfall relief
The Pension Protection Act of 2006 (PPA) modified the minimum funding rules for single-employer defined benefit plans. Under PPA, the minimum required contribution for a plan year depends on a comparison of the value of the plan's assets to the plan's funding target. The PPA had a transition rule where the percentage of funding could be 92 percent in 2008, 94 percent in 2009, and 96 percent in 2010. However, if a plan fell short of the transition rule percentage for a plan year, the plan could not use the transition rule in a subsequent year. WRERA 2008 relaxes this transition rule, allowing the transition percentages to be used through 2010.
Source: Worker, Retiree, and Employer Recovery Act of 2008 (Public Law, 110-459)
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