By: Mike Baker, CPA, CFP

What Does Passage of the Worker, Retiree and Employer Recovery Act Mean To You?

On December 11, 2008, the Senate approved H.R. 7327, the "Worker, Retiree and Employer Recovery Act" (Pension Act of 2008) by unanimous consent.  The day before, the bill was unanimously passed by the House and President Bush has indicated his full support for this legislation.

The primary benefit of the new Pension Act of 2008 is that it suspends the requirement for seniors who are 70½ years of age to make mandatory withdrawals from their retirement accounts as current law requires. Under current law, if those withdrawals are not made, significant penalties are incurred.  The Pension Act of 2008 suspends that requirement primarily because the value of most retirement accounts has substantially declined during the nation's recent economic crisis.  Financial experts agree that withdrawing funds when retirement account values are significantly down is not always the best strategy. 

The new Pension Act of 2008 also allows companies to postpone making increased contributions to their pension plans which was another requirement of current legislation enacted in 2006.  That provision was enacted to protect employees by requiring companies to make contributions to their pension plans at a much faster rate.  While that strategy made sense in 2006, with the current economic downturn and with market values so much lower than they were in 2006, Congress wisely recognized that it made more sense to postpone those contributions in order to keep companies viable.

It should be noted that the Pension Act of 2008 applies only to calendar year 2009.  It remains to be seen whether these actions will need to be renewed for future years.