Recent Financial Rescue Plans Enacted by Congress

August 25, 2010 by  

The Emergency Economic Stabilization Act of 2008 (P.L. 110-343), includes tax extender and disaster relief provisions which affect pensions and employee benefits. The Act also contains provisions designed to prevent the government from subsidizing excessive compensation to executives and includes new mental health parity rules.

IRA rollovers

Included in the individual extender provisions is an extension of the rules permitting IRA contributions to charities. The Pension Protection Act of 2006 (PPA; P.L. 109-280) created a provision allowing taxpayers to make tax-free contributions from their IRAs to qualified charitable organizations. This tax benefit expired on December 31, 2007. The legislation extends the provision through 2009.

Disaster Relief

The legislation provides tax relief for victims of the weather-related disasters in Arkansas, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Nebraska and Wisconsin (Midwestern Disaster Area) and applies to disasters caused by floods, severe storms, and tornadoes declared by FEMA on or after May 20, 2008, and before August 1, 2008. The Act waives the 10 percent penalty tax if a distribution from an IRA or qualified plan (e.g., a 401(k), 403(b), or 457(b) plan) is considered a qualified Disaster Recovery Assistance distribution.

The law allows distributions from a 401(k) or 403(b) plan or IRA that were to be used for the purchase of a home in the Midwestern disaster area to be re-contributed, under specified circumstances, to the plan or IRA tax-free (i.e., the re-contributions would be treated as rollovers). Amounts must be re-contributed within 5 months from the date of enactment in order to receive favorable tax treatment. The Act 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. The provision applied to loans made after the date of enactment and before January 1, 2010.

Executive Compensation

Under the Act, the Code Sec. 162(m) $1 million limit on deductible employer remuneration is reduced to $500,000 in the case of otherwise deductible compensation of a covered executive of an employer whose assets are acquired under a “troubled asset relief program” established by the bill.

Mental Health Parity

The legislation includes the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008, which would require private insurance plans that offer mental health benefits as part of the coverage to offer such benefits on par with the medical-surgical benefits. The proposal has been  effective since January 1, 2009.

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