By George Jones and George L. Yaksick, Jr., Toolkit Washington Staff Writers

Business tax incentives and a host of pension provisions are in limbo after Congress has recessed for Thanksgiving. Left unfinished are proposals to extend bonus depreciation and increased Code Sec. 179 expensing along with relief for pension plans and retirees. Leaders of the House and Senate have indicated that lawmakers may return to work during the week of December 8; however, it is unclear if the package of business and pension relief in the Worker, Retiree, and Employer Recovery Act, will win enough support to move in the House and Senate before the end of 2008.

Also in December, the lame-duck Congress may revisit a bailout plan for the nation's big three automakers, which could include limits on executive compensation. House Speaker Nancy Pelosi (D-Calif.) said on November 21 that an auto bailout bill should include "accountability to taxpayers." Pelosi specifically mentioned "no bonuses for people making over $200,000."

Business Stimulus

Bonus depreciation and increased Code Sec. 179 expensing under the Economic Stimulus Act of 2008 will generally expire at the end of 2008.

Dorothy Coleman, vice president, tax, technology and domestic economic policy, National Association of Manufacturers, said that one shortcoming of the Economic Stimulus Act is its brief window of time for businesses to take advantage of bonus depreciation and increased Code Sec. 179 expensing (generally through December 31, 2008 with longer periods for certain property). This new legislation would extend bonus depreciation and increased Code Sec. 179 expensing through 2009.

Pension Provisions

Pension plans are clamoring Congress for funding relief. The Pension Protection Act of 2006 (PPA) set funding targets for pension plans. Many employers are strapped for cash because of the financial crisis and cannot meet their funding obligations. Under a new bill, plans that fall below the target funding percentage for a particular year will be required to fund up to the specified funding percentage for that year instead of 100 percent.

Coleman told CCH that the pension funding provisions have a "factory-floor impact." Manufacturers and other businesses must satisfy their pension funding obligations and in today's tight credit markets, it is difficult to borrow funds, Coleman explained. Businesses may otherwise divert funds from job creation and retention to meet their mandatory funding requirements.

Retirees are also asking Congress for help. Individuals must receive the entire balance of their qualified retirement savings accounts (IRAs, 401(k)s, 403(b)s and certain 457 plans) or start receiving periodic distributions from them by April 1 of the year following the year in which they reach age 70 1/2 (the required beginning date for distributions). The IRS will impose an excise tax of 50 percent on the amount that is not distributed as required. In broad-brush relief, the proposed legislation would temporarily suspend required minimum distributions (RMDs) entirely for 2009.

RMDs have had another downside due to the precipitous drop in the market value of many accounts. Individuals are required to take distributions from their retirement accounts based on the fair market value of their account on the last day of the previous year. "Individuals who have taken a large hit on their portfolios will have to sell assets at a steep discount to make the distributions," said Rob Seltzer, a CPA from Beverly Hills, California. The proposed bill, in temporarily lifting all RMDs, would allow retirees to get back some of those losses, assuming the markets improve in 2009.

The measure includes a number of provisions designed to lessen the impact of the financial credit crisis on holdings in pension plan funds. Among the technical changes:

• Require plans to permit rollovers for non-spousal beneficiaries.
• Extend the $3,000 exclusion for health insurance premiums for retired public safety officers to self-funded arrangements.
• Authorize the Treasury Secretary to set rules for small defined benefit plans that have a valuation date other than the first day of the plan year for purposes of quarterly contributions and determining the application of the benefit restriction rules.
• Allow plans to look back to the previous plan year for purposes of determining their funding status as it would apply to benefit accruals only to stave off restrictions on benefit accruals as a result of being less than 60 percent funded.
• Apply the 2008 transition rule for determining at-risks status to both the 70 percent and the 80 percent prongs.
• Authorize the payment of lump sums of $5,000 or less even if a plan is otherwise prohibited from paying lump sums.
• Exempt from the Roth IRA contribution adjusted gross income limits rollovers from a Roth 401(k) or a 403(b) to a Roth IRA.
• Require plan expenses expected to be paid out of plan assets to be included in calculating the plan's target normal cost.
• Allow airline workers whose defined benefit pension plans were terminated or frozen as a result of bankruptcy to roll-over bankruptcy payments intended to replace lost retirement income to a Roth IRA.
• Require small defined benefit plans to determine the value of lump sum distributions not in excess of the Code Sec. 415 limit using a fixed 5.3 percent interest rate.
• Permit government retirement plans that credit a participant's account balance with a specified interest rate to use a rate that exceeds the market rate of return as defined by the U.S. Treasury Department.
• Protect the tax-free treatment of reimbursements by state and local government plans if the plan provides for reimbursements incurred by a decreased participant's non-spouse/non-dependent beneficiary.
• Allow the value of a plan's assets to be adjusted for contributions, distributions and expected earnings with a cap on expected earnings equal to the third segment rate of the yield curve.
• Provide that the combined plan deduction limit for defined benefit and defined contribution plans does not apply to the defined benefit plan if contributions to the defined contribution plan are no more than six percent of compensation.
• Allow multi-employer plans to elect to freeze their current funding certification based on the previous year's level.
• Provide for a three-year extension of the current funding improvement or rehabilitation period for multi-employer plans, from 10 to 13 years.

Related items:

Congress Passes Tax Extenders as Part of Bailout Bill

Business Owners See Job Losses If Tax Extenders Not Renewed

Congress Debates Expiring Tax Provisions, Disagrees on Tax Hikes

Added to the news December 2, 2008.