Emergency Economic Stabilization Act
Rev. 10/10/08, E-mail Alert 2008-13

The EESA contains a few provisions related to retirement plans. Following are some highlights.

IRA CHARITABLE DONATION PROVISION
The Pension Protection Act of 2006 (PPA) created a provision allowing taxpayers who are 70 1/2 or older to make tax-free contributions from their IRA plans to a qualified charitable organizations. This tax benefit expired on December 31, 2007. EESA extends this provision for tax years 2008 and 2009. Thus, the provision is effective for distributions after December 31, 2007 and before January 1, 2010. For more information on how this PPA worked, click here.

MIDWESTERN DISASTER TAX RELIEF
Midwestern Disaster Area Tax Relief. EESA provides tax relief for victims of
the Midwestern disaster in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan,
Minnesota, Missouri, Nebraska and Wisconsin. The provisions are applicable to floods,
severe storms, and tornadoes that are declared by FEMA on or after May 20, 2008, and
before August 1, 2008.

A. Relief for All Counties Declared Eligible for Assistance
The EESA provisions immediately below benefit taxpayers located in all counties in the ten
states mentioned above that are presidentially-declared (FEMA) major disaster areas
determined to warrant individual assistance, individual and public assistance, or public
only assistance due to flooding, tornadoes, or severe storms.

Qualified Disaster Recovery Assistance Distributions. EESA waives the 10% penalty tax if a distribution from an individual retirement account (“IRA”) or taxfavored retirement plan (e.g., Code sections 401(k), 403(b), or 457(b) plans) is considered a qualified Disaster Recovery Assistance distribution (“qualified distribution”).

A distribution is considered a qualified distribution if it is made on or after the presidentially-declared disaster date (“applicable declaration date”) and before January 1, 2010 and is made to an individual whose principal residence on the applicable declaration date is located in a Midwestern disaster area and who sustained an economic loss by reason of the disaster. Other principal features include the following:

(i) the waiver is limited to amounts up to $100,000;
(ii) the mandatory withholding rules applicable to eligible rollover distributions would not apply;
(iii) participants receiving a qualified distribution would be permitted to spread the income tax resulting from receipt of the distribution ratably over three years; and (iv) amounts distributed may be recontributed to the plan over a three-year period following the distribution and such recontributed amounts would not be includible in income (e.g., if a participant received a qualified distribution in 2008 and subsequently re-contributed the distribution amount in 2009, the participant may file an amended return requesting a refund for the amount taxable in 2008).

Recontribution of Withdrawals for Home Purchases.
EESA allows distributions for home purchases that were made from a Code section 401(k) or 403(b) plan or IRA after the date which is 6 months before the applicable declaration date and
before the day after the applicable declaration date and that were not finalized because of the tornadoes and floods giving rise to the designation of the area as a disaster area to be re-contributed to the plan or IRA tax-free (i.e., the recontributions would be treated as rollovers). Amounts must be re-contributed within 5 months from the date of enactment of this bill in order to receive favorable tax treatment.

Loans from Qualified Plans.
EESA effectively doubles the limitation on loans from a 401(k), 403(b), or a governmental 457(b) plan by allowing participants located in a Midwestern disaster area and who sustained economic loss by reason of the tornadoes and floods giving rise to the designation of the area as a disaster area to receive loans up to the lesser of $100,000, or 100 percent of the vested accrued benefit for loans made after the date of enactment and before January 1, 2010. In addition, outstanding loan payments due on or after the applicable declaration date and before January 1, 2010 may be deferred an additional 12 months, with appropriate adjustments for interest.

EESA SECTION 135
TEMPORARY INCREASE in DEPOSIT and SHARE INSURANCE COVERAGE

FEDERAL DEPOSIT INSURANCE ACT; TEMPORARY INCREASE IN DEPOSIT INSURANCE.
(1) INCREASED AMOUNT.—Effective October 3, 2008 until December 31, 2009, FDIC insurance is increased from $100,000 to $250,000.

(2) TEMPORARY INCREASE NOT TO BE CONSIDERED FOR SETTING ASSESSMENTS.—The temporary increase in the standard maximum deposit insurance amount made under paragraph (1) shall not be taken into account by the Board of Directors of the Corporation for purposes of setting assessments under section 7(b)(2) of the Federal Deposit Insurance Act (12 U.S.C. 1817(b)(2)).

(3) BORROWING LIMITS TEMPORARILY LIFTED.— During the period from October 3, 2008 and December 31, 2009, the Board of Directors of the Corporation may request from the Secretary, and the Secretary shall approve, a loan or loans in an amount or amounts necessary to carry out this subsection, without regard to the limitations on such borrowing under section 14(a) and 15(c) of the Federal Deposit Insurance Act (12 U.S.C. 1824(a), 1825(c)).

(b) FEDERAL CREDIT UNION ACT; TEMPORARY INCREASE IN SHARE INSURANCE.—
(1) INCREASED AMOUNT.—Effective October 3, 2008 and ending on December 31, 2009, Federal Credit Union Insurance shall be increased from $100,000 to $250,000.
(2) TEMPORARY INCREASE NOT TO BE CONSIDERED FOR SETTING INSURANCE PREMIUM CHARGES.—The temporary increase in the standard maximum share insurance amount made under paragraph (1) shall not be taken into account by the National Credit Union Administration Board for purposes of setting insurance premium charges under 93
O:\AYO\AYO08C32.xml S.L.C. section 202(c)(2) of the Federal Credit Union Act 1
(12 U.S.C. 1782(c)(2)).
(3) BORROWING LIMITS TEMPORARILY LIFTED.—During the period beginning on the date of enactment of this Act and ending on December 31, 2009, the National Credit Union Administration Board may request from the Secretary, and the Secretary shall approve, a loan or loans in an amount or amounts necessary to carry out this subsection, without regard to the limitations on such borrowing under section 203(d)(1) of the Federal Credit Union Act (12 U.S.C. 1783(d)(1)).
(c) NOT FOR USE IN INFLATION ADJUSTMENTS.—
The temporary increase in the standard maximum deposit insurance amount made under this section shall not be used to make any inflation adjustment under section 11(a)(1)(F) of the Federal Deposit Insurance Act (12 U.S.C. 1821(a)(1)(F)) for purposes of that Act or the
Federal Credit Union Act.

EESA SECTION 504.
INCOME AVERAGING FOR AMOUNTS RECEIVED IN CONNECTION WITH THE EXXON VALDEZ LITIGATION.

In general, qualified amounts (defined below), up to the limit permitted below, from this settlement paid to a qualified taxpayer (defined below) may be contributed to an eligible retirement plan as defined below. Section 504 is presented below for reference.

SEC. 504. INCOME AVERAGING FOR AMOUNTS RECEIVED IN CONNECTION WITH THE EXXON VALDEZ LITIGATION.

(a) INCOME AVERAGING OF AMOUNTS RECEIVED FROM THE EXXON VALDEZ LITIGATION.
For purposes of section 1301 of the Internal Revenue Code of 1986—

(1) any qualified taxpayer who receives any qualified settlement income in any taxable year shall be treated as engaged in a fishing business (determined without regard to the commercial nature of the business), and
(2) such qualified settlement income shall be treated as income attributable to such a fishing business for such taxable year.

(b) CONTRIBUTIONS OF AMOUNTS RECEIVED TO RETIREMENT ACCOUNTS.
(1) IN GENERAL— Any qualified taxpayer who receives qualified settlement income during the taxable year may, at any time before the end of the taxable year in which such income was received, make one or more contributions to an eligible retirement plan of which such qualified taxpayer is a beneficiary in an aggregate amount not to exceed the lesser of—

(A) $100,000 (reduced by the amount of qualified settlement income contributed to an eligible retirement plan in prior taxable years pursuant to this subsection), or
(B) the amount of qualified settlement income received by the individual during the taxable year.

(2) TIME WHEN CONTRIBUTIONS DEEMED MADE.—
For purposes of paragraph (1), a qualified taxpayer shall be deemed to have made a contribution to an eligible retirement plan on the last day of the taxable year in which such income is received if the contribution is made on account of such taxable year and is made not later than the time prescribed by law for filing the return for such taxable year (not including extensions thereof).

(3) TREATMENT OF CONTRIBUTIONS TO ELIGIBLE RETIREMENT PLANS.—
For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to paragraph (1) with respect to qualified settlement income, then—
(A) except as provided in paragraph (4)—

1. to the extent of such contribution, the qualified settlement income shall not be included in taxable income, and
2. for purposes of section 72 of such Code, such contribution shall not be considered to be investment in the contract,

(B) the qualified taxpayer shall, to the extent of the amount of the contribution, be treated—

1. as having received the qualified settlement income—

(I) in the case of a contribution to an individual retirement plan (as defined under section 7701(a)(37) of such Code), in a distribution described in section 408(d)(3) of such Code, and
(II) in the case of any other eligible retirement plan, in an eligible rollover distribution (as defined under section 402(f)(2) of such Code), and
(ii) as having transferred the amount to the eligible retirement plan in a direct trustee to trustee transfer within 60 days of the distribution,
(C) section 408(d)(3)(B) of the Internal Revenue Code of 1986 shall not apply with respect to amounts treated as a rollover under this paragraph, and
(D) section 408A(c)(3)(B) of the Internal Revenue Code of 1986 shall not apply with respect to amounts contributed to a Roth IRA (as defined under section 408A(b) of such Code) or a designated Roth contribution to an applicable retirement plan (within the meaning of section 402A of such Code) under this paragraph.

(4) SPECIAL RULE FOR ROTH IRAS AND ROTH 401(k)S.—
For purposes of the Internal Revenue Code of 1986, if a contribution is made pursuant to paragraph (1) with respect to qualified settlement income to a Roth IRA (as defined under section 408A(b) of such Code) or as a designated Roth contribution to an applicable retirement plan (within the meaning of section 402A of such Code), then—

(A) the qualified settlement income shall be includible in taxable income, and
(B) for purposes of section 72 of such Code, such contribution shall be considered to be investment in the contract.

(5) ELIGIBLE RETIREMENT PLAN.—For purpose of this subsection, the term ‘‘eligible retirement plan’’ has the meaning given such term under section 402(c)(8)(B) of the Internal Revenue Code of 1986.

Emergency Economic Stabilization Act

EESA Senate Finance Committee Summary