House Passes Pension Legislation; Senate Yet to Act
Joint Update from ProtectSeniors.Org and the Association of BellTel Retirees, Inc.
On Tuesday evening, the House of Representatives passed critical pension legislation, which would provide relief to retirees who have lost much of their retirement savings and to companies that have complained of stringent requirements for funding their pension plans during a recession.
Specifically, this legislation would place a moratorium on current law requiring retirees older than 70 to withdraw money from their 401(k) accounts and other defined contribution plans by the end of 2009 or face a tax penalty.
However, the bill does not address the so-called Required Minimum Distributions (RMD) for this year. According to members on both sides of the aisle, this issue is controversial because the amount a retiree is required to withdraw is based on the account balance at the end of the previous year. This rule will require retirees to take withdrawls after their portfolios have suffered significant losses.
Ignoring the RMD rule will result in a 50 percent tax penalty on the amount that should have been withdrawn. Congress has decided to let the Department of Treasury handle the RMD issue. According to the Treasury Department, they are looking at this issue, but no decision or timeframe has been given on whether they will act.
This bill still has to pass in the Senate before heading to the President’s desk and there is no indication that this will happen this year. Similar legislation failed to pass in the Senate before Thanksgiving.
While neither ProtectSeniors.Org nor the Association of BellTel Retirees are able to give financial advice, we do recommend that if you were 70 ½ or older in the year 2008 and you have an IRA or a 401(k) you should seek immediate advice from your accountant.