Two WRERA Changes
Rev. 4/3/09, E-mail Alert 2009-05

1. The Emergency Economic Stabilization Act of 2008 extended the deadline for allowing RMD-eligible individuals to make charitable donations from their IRAs until the end of 2009. However, the Workers, Retirees and Employers Recovery Act suspended RMDs for 2009. Will charitable organizations see a loss of donations due to the RMD suspension? Only time will tell. Hopefully not, and hopefully, the charitable donation may be extended again.

2. When is the plan document change for a nonspouse beneficiary required to be effective by?

The recently passed Workers, Retiree and Employer Recovery Act of 2008 (WRERA) made several technical corrections to the PPA, one of these corrections being that all qualified plans must permit a nonspouse beneficiary the ability to rollover to an inherited IRA for plan years beginning after December 31, 2009. By way of background, this is a change of a change.

Originally, the Section 829 of the Pension Protection Act of 2006 created the nonspouse beneficiary change to the law. PPA Section 829 follows:

“SEC. 829. ALLOW ROLLOVERS BY NONSPOUSE BENEFICIARIES OF CERTAIN RETIREMENT PLAN DISTRIBUTIONS.
(a) IN GENERAL —

(1) QUALIFIED PLANS — Section 402(c) of the Internal Revenue Code of 1986 (relating to rollovers from exempt trusts) is amended by adding at the end the following new paragraph:

‘‘(11) DISTRIBUTIONS TO INHERITED INDIVIDUAL RETIREMENT PLAN OF NONSPOUSE BENEFICIARY —
‘‘(A) IN GENERAL — If, with respect to any portion of a distribution from an eligible retirement plan of a deceased employee, a direct trustee-to-trustee transfer is made to an individual retirement plan described in clause (i) or (ii) of paragraph (8)(B) established for the purposes of receiving the distribution on behalf of an individual who is a designated beneficiary (as defined by section 401(a)(9)(E)) of the employee and who is not the surviving spouse of the employee—

‘‘(i) the transfer shall be treated as an eligible rollover distribution for purposes of this subsection,

‘‘(ii) the individual retirement plan shall be treated as an inherited individual retirement account or individual retirement annuity (within the meaning of section 408(d)(3)(C)) for purposes of this title, and

‘‘(iii) section 401(a)(9)(B) (other than clause (iv) thereof) shall apply to such plan.

‘‘(B) CERTAIN TRUSTS TREATED AS BENEFICIARIES .— For purposes of this paragraph, to the extent provided in rules prescribed by the Secretary, a trust maintained for the benefit of one or more designated beneficiaries shall be treated in the same manner as a trust designated beneficiary.''

In Notice 2007-7, the IRS provided guidance on the operation of these rules including that the employer plan did not have to incorporate the provision for the nonspouse beneficiary rollover as this was an optional plan provision. Later in 2007, the IRS indicated on its webpage that the nonspouse beneficiary rollover would be a required plan provision effective for plan years starting in 2008 but that for 2007 it was an optional provision. The reason cited for this change was the pending Technical Corrections Act was known to have a provision to make this a required plan provision. The WRERA included the PPA Technical Corrections, however, as stated above. the nonspouse beneficiary rollover implementation date is now for plan years starting after December 31, 2009.

For plans that have already incorporated this provision as part of a PPA amendment or a board resolution, obviously the plan provision is already in place. For those that did not, the provision may be incorporated simultaneously with this year's PPA amendment or may be made next year in accordance with WRERA.