SunGard Relius

On June 17, 2008, the President signed the Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART). Among other things, HEART will change the way retirement plans deal with employees in the military. This technical update will address three issues:

1. When must plans be amended to conform to HEART?
2. How does HEART affect final 415 regulation amendments?
3. How does HEART affect PPA amendments?

Amendments to Conform to HEART
There are at least two broad issues in HEART which will require plan amendments: the treatment of differential wage payments to employees in the military and benefits for employees who die or become disabled in the military. HEART requires plan amendments for these issues by the last day of the 2010 plan year (one year after the PPA amendment deadline). This delay will give the IRS an opportunity to provide guidance on some of the ambiguous issues surrounding HEART.

HEART and Final 415 Regulation Amendments
HEART overlaps the final 415 regulations in dealing with compensation. The final regulations state that post-severance payments to persons in the military are compensation for plan purposes only if the plan document so provides. In other words, the plan has the option whether or not to count post-severance military payments. The final regulations are effective for limitation years beginning after June 30, 2007.

HEART says that beginning in 2009: (a) active-duty members of the military who receive differential wage payments from their employer are deemed to still be in service, and (b) those payments are compensation for plan purposes. Thus, under HEART, most payments to persons in the military do not come under the post-severance compensation rules of the final 415 regulations.

Thus, while the two issues overlap, they do not conflict. However, since an employer must count differential wage payments beginning in 2009, the employer may be more interested in counting them for prior years as well under the optional provisions of the final regulations. In any case, HEART does not require a different approach to final 415 regulation amendment and does not postpone the deadline for adopting that amendment.

HEART and PPA Amendments
HEART addresses one issue in the Pension Protection Act (PPA): Qualified Reservist Distributions (QRDs). To be eligible for a QRD under PPA, a reservist must have been called to active duty between September 11, 2001 and December 31, 2007. HEART removes the December 31, 2007 deadline. Thus, QRDs continue to be available.

We will address HEART in detail in our July 17 Web Seminar, "You've Gotta Have HEART: New Pension Rules for Veterans." We will also summarize it at the Chicago Advanced Pension Conference in September and in this fall’s ERISA Workshop.