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House Votes to Suspend Unfair Retirement Tax on Seniors Provision part of legislation to ease requirements for pension plans stressed by the economic crisis
Wednesday, December 10, 2008
WASHINGTON, DC -- The U.S. House of Representatives approved bipartisan legislation today that would temporarily suspend a tax penalty for seniors who do not take a minimum withdrawal from their depleted retirement accounts, such as 401(k)s.
The Worker, Retiree and Employer Recovery Act (H.R. 7327), suspends for one year an Internal Revenue Service requirement that account holders of 401(k)-style plans must withdraw a minimum amount of money every year after they reach 70 ½ years old. This suspension would be available to everyone regardless of their retirement account balances.
“Americans have seen trillions of dollars evaporate from their retirement accounts over the last few months as a result of our economic crisis,” said U.S. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee. “I’m glad that Congress worked swiftly, and in a bipartisan way, to provide important relief to seniors who may face a steep tax if they do not make a withdrawal from their depleted retirement accounts.”
“This relief will help workers and seniors safeguard their retirement savings during the economic crisis.” said Ways and Means Committee Chairman Charles B. Rangel (D-NY). “Every segment of our economy is experiencing financial pain and this bipartisan legislation will go a long way to help employers do the right thing for their workers even in these difficult economic times.”
“This year’s economic downturn has seriously impacted the U.S. job market and benefits for workers,” said Rep. Rob Andrews (D-NJ), the chairman of the Health, Employment, Labor and Pensions Subcommittee. “The House acted responsibly tonight to address this problem by passing the Worker, Retiree, and Employer Recovery Act. The bill will provide financial relief to large and small employers, as well as individuals with 401(k) accounts and alike, who have been adversely affected by this unprecedented market downturn.”
“In the face of daunting economic challenges and an unanticipated strain on our nation’s retirement system, Congress has taken a measured and appropriate step to ease the financial burden on workers, retirees, and employer-sponsored pension plans,” said U.S. Rep. Howard P. “Buck” McKeon (R-CA), the Education and Labor Committee’s senior Republican. “While we remain fully and unequivocally committed to the notion that businesses and unions must fully fund their pension obligations to their workers, the small step we’re taking today will provide much-needed relief to participants, plan sponsors, and beneficiaries in the short term, potentially staving off job cuts, benefit reductions, or financial burdens that would be far more harmful to workers and retirees in the long term.”
“The minimum distribution rules are especially burdensome in the face of sharp financial market declines; suspending these rules for 2009 will provide some much-needed relief to senior citizens, and I hope the Senate is able to act quickly on this measure,” said Rep. Jim McCrery (R-LA), the senior Republican on the Ways and Means Committee.
Current regulations require account holders of 401(k)-type account to withdraw a minimum amount of money every year after they reach 70 ½ years old. If seniors do not take out a minimum amount based on an Internal Revenue Service formula, they are subject to a 50 percent penalty. For instance, if an individual fails to withdraw $4,000, they would be assessed a $2,000 tax the next year.
H.R. 7327 also eases funding requirements for companies and other pension plans forced to make additional contributions as a result of the economic downturn and makes technical corrections to the Pension Protection Act of 2006.