New Law Suspends 2009 Required Minimum Distribution Rules for Certain Qualified Retirement Plans
On December 23, 2008, President George W. Bush signed the Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA"). One of WRERA's provisions directly affects the processing of required minimum distributions for 2009.
As a brief background, qualified retirement plans are generally required to make required minimum distributions ("RMDs") to plan participants once they reach age 70 ½. The basic idea is, first, those assets were intended to be paid during retirement (rather than paid to a beneficiary after the participant's death). Second, by forcing the distributions to begin, the government is permitted to tax the assets that have grown, tax-free, until then. For a defined contribution plan, such as a 401(k) plan or a profit sharing plan, the RMD for any given year is generally determined by dividing the participant's account balance at the end of the prior year by the life expectancy of the participant and his or her designated beneficiary, using IRS mortality tables. Similar rules apply to IRAs.
As we are all aware, equity investments, including those of qualified plans, suffered significant losses in market value in 2008. WRERA's changes relevant to RMDs are designed to facilitate growth in participants' account values by suspending the requirement that assets be distributed in the form of RMDs. Specifically, WRERA suspends the RMD rules for defined contribution plans and for IRAs for 2009. Notably, the provision applies to all defined contribution plans and IRAs (and all participants and beneficiaries who would otherwise be required to take an RMD from a defined contribution plan or an IRA for 2009), regardless of whether the plan and/or account suffered a loss in value in 2008.
Please note the Act applies only to RMDs for 2009. Specifically, the Act does not apply to 2008 RMDs that are actually paid out in 2009. (Participants who attain age 70 ½ in 2008, whose first RMD would be paid out no later than April 1, 2009, are still required to take that distribution. Their 2009 RMD, however, is not required.)
WRERA was effective January 1, 2009, just days after it was signed into law. We have received very little guidance regarding how the provision applies as a practical matter. Consequently, there are more questions than answers as of this writing. As we learn more about the RMD suspension, we will pass the information along to you. Until then, we recommend that plans not make 2009 RMDs before consulting with experienced benefits counsel.
Newer Laws Require Prompt Action by Group Health Plans
American Recovery and Reinvestment Act of 2009. The recently enacted stimulus package includes significant changes to the COBRA continuation coverage rules effective March 1, 2009. Briefly, employees who suffered or will suffer involuntary termination of employment during the period September 1, 2008 through December 31, 2009 may be entitled to a subsidized COBRA premium for up to 9 months. Under the statute, the employer/plan can require an "assistance eligible individual" (AEI) to pay only 35 percent of the COBRA premium that the AEI would otherwise be required to pay. The employer then recoups the remaining premium cost by way of a credit against its liability for payroll taxes and federal income taxes withheld from the employees' compensation.
Within sixty days of enactment (by April 19, 2009), employees who were involuntarily terminated (other than for gross misconduct) on or after September 1, 2008 and were entitled to COBRA coverage as a result of such termination must be notified of the availability of the subsidy. Any within that group who are not already enrolled in COBRA coverage must also be notified that they (and their eligible dependents) have a new period in which to elect COBRA coverage. The new election period starts on the day of enactment, February 17, 2009, and ends 60 days after notification. If an individual then elects COBRA coverage during that period, such coverage becomes effective as of March 1, 2009. The maximum period of continuation coverage is measured from the date of the qualifying event, the termination of employment. This notice requirement is helped by the fact that the legislation instructs the Department of Labor to promulgate model notices within 30 days of the statute's enactment.
For those companies that self-administer their COBRA programs, we would be happy to assist your HR folks in navigating through this unfamiliar terrain. If your COBRA program is administered by a third party administrator, we would expect that that firm will be in touch with your HR departments soon to prepare for the new COBRA regime. We are available, of course, to review any documentation provided by your TPA and to otherwise assist in your compliance efforts. Please contact us if we can be of any assistance.
Children's Health Insurance Program Reauthorization Act of 2009. The CHIP Reauthorization Act was signed into law on February 4, 2009. States may elect to provide premium assistance subsidies to low-income employees who want to change their single coverage to family coverage in order to cover a CHIP- or Medicaid-eligible dependent. Beginning April 1, 2009, group health plans must offer new special enrollment rights. Specifically, group health plans must permit employees and dependents who are "eligible but not enrolled for coverage" under the plan to enroll in two additional circumstances: 1) the employee's or dependent's Medicaid or CHIP coverage is terminated as a result of loss of eligibility; or 2) the employee or dependent becomes eligible for a subsidy under Medicaid or CHIP. Employees have 60 days in which to exercise either of these special enrollment rights. In addition, group health plan administrators are required to disclose information about plan benefits to states that request such information so that those states can determine the cost-effectiveness of providing premium assistance. Employers who maintain group health plans in states that elect to provide premium assistance are required to provide written notices of the subsidy to their employees. The notice requirement has a delayed effective date, and model notices are due from the regulators by February 4, 2010. Prompt action is required, however, with respect to the new special enrollment rights. Again, we expect that you soon will be hearing from your insurer or TPA concerning these changes. If we can be of any assistance, please contact us.
Jeffrey Tour
Huntington Center
41 South High St., Suite 2200
Columbus, Ohio 43215
Phone (614) 221-5100
Fax (614) 221-0952
jeffre.tour@steptoe-johnson.com
Sara Hauptfuehrer
Chase Tower - Sixth Floor
229 West Main Street
Clarksburg, WV 26301 P.O. Box 2190
Clarksburg, WV 26302-2190
Phone (304) 624-8000
Fax (304) 624-8183
sara.hauptfuehrer@steptoe-johnson.com
Jamie Leary
1233 Main Street, Suite 3000
Wheeling, WV 26003 PO Box 751
Wheeling, WV 26003-0751
Phone (304) 233-0000
Fax (304) 233-0014
jamie.leary@steptoe-johnson.com
This alert is a periodic publication of Steptoe & Johnson PLLC and should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The content is intended for general information purposes only, and you are urged to consult your own lawyer concerning your own situation and any specific legal questions that you may have. For further information about these contents, please contact Steptoe & Johnson PLLC.