As reports of the huge losses in retirement plans over the past year continue to surface, members of Congress along with the Treasury Department and retirement plan advocates are working to provide workers and retirees some relief now–required minimum distribution rules may be changed before year-end–and into the new year.
Retirement industry experts predict that the 111th Congress will undertake an extensive review of defined contribution and defined benefit plans.
Tom Reeder, an attorney with Treasury’s office of tax policy, told attendees at the American Society of Pension Professionals and Actuaries (ASPPA) annual meeting in Washington in mid October that Treasury and Congress “are looking at ways to change” the rules that say retirees in IRAs must continue to take their required minimum distributions. As retirement plans’ values have plummeted during the market crisis, these “retirees may not want to take out as much as the current regs require,” Reeder said.
Indeed, Lynn Dudley, senior VP, retirement policy at the American Benefits Council (ABC) in Washington, says that allowing those retirees aged 70 1/2 to not take the required minimum distributions from their IRAs will likely hinge on whether a stimulus bill gets passed. “If a stimulus bill happens, I think there is a lot of interest in addressing the minimum required distribution issue,” she says.
Some members of Congress are also willing to consider waiving this year the 10% penalty tax that’s levied against those who take early withdrawals from their IRAs, Dudley says. “I think there’s empathy that maybe this isn’t the year to penalize people for taking withdrawals,” she says. “It’s hard to impose that when people are suffering, and most hardship” withdrawals are taken by lower-income workers.
Easing the required minimum distribution rules and waiving the 10% penalty were part of the American Benefits Councils’s 10-point plan it presented to Congress in October, which outlined ways to help individuals get through the tough economic times, prevent “unexpected and unintended pension funding mandates that would cost jobs and trigger massive benefit ‘freezes,’” and for encouraging future retirement saving.