On December 23, 2008, President Bush signed into law the "Worker, Retiree, and Employer Recovery Act of 2008" (Act).

         The Act provides numerous technical corrections to the Pension Protection Act of 2006 (PPA) and provides pension funding relief in light of the current economic crisis.  The following is a brief summary of some of the Act's provisions of interest to single employer plans.

Required Minimum Distributions for 2009

         The Act places a moratorium on required distributions from defined contribution plans and IRAs for 2009 only.

         Participants whose required beginning date would be April 1, 2010 (in other words, the participant reaches age 70½ in 2009) are not required to receive a required minimum distribution by April 1, 2010.  Instead, such participants would receive their first required minimum distribution by December 31, 2010 (which is their 2010 required minimum distribution).  Participants who reached 70½ in 2008 would still receive their first required minimum distribution by April 1, 2009 for 2008 but would not have any required minimum distribution for the 2009 year.

Planning Tip:

         If a participant has elected only to receive the required minimum distribution, he or she would technically receive zero distributions during 2009.  Plan sponsors may wish to contact such participants to see whether they wish to receive a distribution for 2009.

         Plan sponsors need to review their plan document to determine whether a plan amendment is necessary to implement this moratorium for 2009.

PPA Transitional Funding Relief for Defined Benefit Plans

         The Act eases funding requirements with respect to the application of the PPA transitional funding targets (92% in 2008 and 94% in 2009).  Plans that meet the transitional funding targets are not required to amortize any funding shortfalls.  Plans that fail to meet the transitional funding target only need to amortize the amount needed to reach the transitional funding target, instead of 100% of the funding target.  This provision of the Act is effective as if it were included in the original PPA (in other words, for plan years beginning in 2008).

Planning Tip:

         Given the current economic environment, we would anticipate most plan sponsors would take full advantage of the relaxed transitional rules.  However, keep in mind that the transitional rules under the PPA and the Act do not apply to plans that first became effective after 2007 or to plans that had a deficit reduction contribution in 2007.

Relief from Freezing of Benefit Accruals

         Under the PPA, a pension plan must freeze benefit accruals if the plan's funded percentage is less than 60%.  The Act allows that, for plan years beginning on or after October 1, 2008 and before October 1, 2009, the plan's funded percentage for the prior plan year may be used in determining whether benefit accruals must be frozen for the current plan year.

Planning Tip:

         Whether a plan amendment is necessary for this provision of the Act depends on the plan's language relative to the Section 436 benefit restrictions.  In general, plans must be amended for Section 436 benefit restrictions by the end of the 2009 plan year.

Small Lump Sum Distributions

         Lump sum distributions of $5,000 or less may be paid even if the benefit restrictions under Section 436 otherwise apply. This provision is effective for plan years beginning after December 31, 2007.

Planning Tip:

         In general, plans must be amended for Section 436 benefit restrictions before the end of the 2009 plan year.

Hybrid Defined Benefit Plans (Cash Balance Plans)

         The Act states that the new three-year vesting rules for hybrid plans are effective on a plan year basis and apply to participants with an hour of service after the applicable effective date for the plan (generally, plan years beginning after December 31, 2007).  The Act also clarifies that the new interest crediting rules for hybrid plans in existence on June 29, 2005 apply for plan years beginning after December 31, 2007 (special rules apply for collectively bargained plans).

Combined Plan Deduction Limit

         The Act provides that if employer contributions to a defined contribution plan are no greater than 6% of compensation, then the combined plan deduction limit for defined benefit and defined contribution plans does not apply.  If defined contribution contributions are more than 6%, then only the excess over 6% is counted toward the deduction limit.

Non-Spouse Rollovers

         The Act requires all plans to permit non-spouse beneficiaries to roll over money out of a defined contribution plan.  This provision was optional under the PPA, but is now mandatory for plan years beginning after December 31, 2009.

         The Act provides that plan expenses expected to be paid out of plan assets must be added to a defined benefit plan's minimum required contribution.  This provision is effective for plan years beginning in 2009, but earlier adoption is permitted.

Planning Tip:

         Plan sponsors will want to wait for further IRS guidance to define what is included as "plan-related expenses" and to define appropriate estimation procedures.

         The Act provides that rollovers from Roth 401(k) or Roth 403(b) accounts to a Roth IRA account are not subject to compensation limits on Roth IRA contributions.

         The Act allows for asset smoothing in valuing plan assets for purposes of determining a defined benefit plan's minimum funding requirement.

Planning Tip:

         Further IRS guidance is necessary to define the parameters under which plans can switch to a smoothed asset value for the 2008 and 2009 plan years.  However, subject to this guidance, we expect most defined benefit plan sponsors to take advantage of this provision given the current economic environment.

         For more information about the Act, please contact Melissa Proffitt Reese, Eric Dawes or the Ice Miller LLP Employee Benefits attorney with whom you work.