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Newsletter
December
2008 Volume
25 - Number 3
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This newsletter is addressed to our clients, their attorneys,
accountants and other professional advisors. Citations may be included for
those who want to refer directly to the source material. IN THIS ISSUE:
RETIREMENT PLAN LIMITS FOR 2009 A summary
of the new limits and thresholds for 2009 compared with those for 2008.
SHOULD
PLAN SPONSPORS CONDUCT AN INTERIM VALUATION? Because of
recent stock market declines, many plan sponsors are looking at whether or
not they should conduct an interim valuation of plan assets prior to making
distributions to terminated or retired participants
or to beneficiaries. THE
EFFECT OF THE MARKET DECLINE ON REQUIRED MINIMUM DISTRIBUTIONS (RMDs) This year, the minimum distribution requirement
may impose a significant hardship on plan participants because the amount
required is based on the value of a participant’s account as of
2007. Since many plans have suffered dramatic losses since that date, many
participants are desirous of not having to liquidate assets at this time in
order to meet the RMD. This newsletter can also be
viewed online at www.prplans.com. |
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RETIREMENT PLAN LIMITS FOR 2009
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SHOULD PLAN SPONSORS CONDUCT
AN INTERIM VALUATION? Because of recent stock market declines,
many plan sponsors are considering whether they should conduct an interim
valuation of plan assets prior to making distributions to terminated or
retired participants or their beneficiaries. In making this decision, the first action
that must be taken is to determine if the plan document permits interim
valuations. Most plan documents prepared by Pacific Retirement Plans do
include these provisions. If you are unsure as to whether or not your plan
contains them, please contact our office for clarification. If the plan does include such provisions,
the question may arise as to whether or not the interim valuation may be
applied to a previously terminated participant who has requested distribution
of his or her account balance. Under Internal Revenue Code Section 411(d)(6), the “valuation date” is not a protected benefit.
This means the plan fiduciary does not violate the so-called anti-cutback
rule if the fiduciary conducts an interim valuation in accordance with plan
provisions. However, a dispute may arise if a participant’s (or beneficiary’s) distribution is adversely impacted by the
valuation. Prior practice of a plan in the event of market fluctuations will
certainly be examined. ERISA requires a plan fiduciary to act in
the best interest of plan participants and beneficiaries. However, in the
event of a dramatic market decline, the interest of the terminated
participants is not the same as the interest of the active participants. If
there is a revaluation of plan assets, the former will share the loss with
the latter. Outgoing participants may be unhappy with this result. If a plan document does not include
provisions for interim valuations, it may be amended to add such provisions
for the future. However, in general, this would not be applicable to
participants who terminated prior to the implementation of the amendment and
requested a distribution. For future plan administration, a plan
sponsor may wish to amend their plan or plans to provide for more frequent
valuations, or to adopt an amendment which requires an interim valuation in
the event of a more than x% market swing up or down since the most
recent valuation. This x% percentage
would be based on some index such as the S&P 500. Plan sponsors should always be careful
that communications reflecting account balances make it clear that any
balance shown is only as of the date indicated and may not necessarily be
what a terminated participant or a beneficiary will receive. This same care
should be exercised in verbal communications with participants regarding
their account balances. A special note to those plan sponsors whose plan or plans are
administered by Pacific Retirement Plans: If, after consideration of the
factors outlined above, you wish to proceed with an interim valuation, please
contact this office as soon as possible so that the necessary actions may be
taken on a timely basis. THE EFFECT OF THE
MARKET DECLINE ON (RMDs) REQUIRED MINIMUM
DISTRIBUTIONS Federal law
requires that individuals over the age of 70 ½ take a mandatory distribution
from their IRAs each year. This is referred to as the “Required Minimum
Distribution” or “RMD”. For many
participants, an RMD must also be taken from an employer 401(k) plan or an
employer pension or profit sharing plan. This year, the
minimum distribution requirement may impose a significant hardship on plan
participants because the amount required is based on the value of a
participant’s account as of 2007. Since most plans have suffered
dramatic losses since that date, many participants are desirous of not having
to liquidate assets at this time in order to meet the RMD. Attached are two
letters from members of Congress addressing this problem.
If you are a participant affected by this issue and wish to add your voice,
we suggest you immediately send a similar letter to your Congress person and
to the Secretary of the Treasury. * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * October
14, 2008
As the economic crisis
continues to plague my constituents across eastern Senior citizens, especially
those over the age of 70 1/2, are finding themselves in a financial quandary.
Many have seen their retirement savings erode while
at the same time are forced to withdraw a required minimum distribution (RMD)
from their accounts or face a stiff penalty. I urge you to immediately relax
this requirement so that seniors neither have to deplete their nest eggs nor
pay a 50 percent penalty for not making the RMD. It is an unfair double
economic hit that senior citizens should not be forced to take. The Congressional Budget Office
estimates that retirement plans have lost nearly 20 percent -- nearly $2
trillion -- since June 2007. Ten percent of those losses occurred in just the
past three months. Further losses will exacerbate our economic recovery. I urge you to immediately relax
the RMD requirement for 2008, and extend that practice into 2009, so that
millions of senior citizens will not further deplete their retirement
savings, and instead lead healthy and productive lives for years to come. Sincerely, * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
* * * * * * * * * * * * * * * * * October
17, 2008
With the recent financial
downturn, many Americans have seen significant decreases in the value of
their investments, particularly their Individual Retirement Accounts (IRAs)
and 401(k)s. Traveling through my District, I have
spoken to thousands of people who are concerned and scared about their
financial situation. One particular group is older
Americans who often times depend on retirement income from their IRAs and
401(k)s for everyday expenses like groceries and
medicine. These people have worked hard, done things the right way, and
saved. Now, they are being punished for the mistakes of others. There is an immediate action we
can take to lessen the pressure they feel in this time of economic
uncertainty. As you are well aware, federal
law requires people over the age of 70 and 1/2 to withdraw funds from their
IRAs by the end of the year. These Americans are being forced to draw down
their accounts at a time of decreased value. The government is essentially
mandating significant financial losses on some of our older citizens. We
should help seniors by suspending minimum IRAs
withdrawal rules to spare them from being forced to sell their stocks when
the market is low. In order to help older
Americans struggling to through our country's financial crisis, Congress
should suspend this IRS requirement before year's end. I respectfully request that the
Treasury Department support any efforts by Congress to temporarily modify
this important program. Sincerely, |
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