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Jim Lentini: New law affects retirement plan

Business Commentary

Posted: October 18, 2010 10:49 p.m.
Updated: October 19, 2010 4:55 a.m.

One of our major companies, Transamerica Life Companies, recently released a report from its retirement services company on the new law, the Small Business Jobs and Credit Act. It stated, on Sept. 27, that President Obama signed this plan into law. One provision of this new law was “in-plan” Roth conversions and what impact that will have on 401(k) plans.

This provision of the new law allows participants in 401(k) plans to convert non-Roth plan amounts that are distributable as an eligible rollover distribution, to Roth amounts within the plan. Amounts become distributable as an eligible rollover distribution following the occurrence of one of several statutorily defined events, including the termination, disability or death of the participant, and the participant’s attainment of age 59 1/2. Certain distributions, including hardship distributions and required minimum distributions, are not eligible rollover distributions, and are thus not eligible for conversion under the law.

Sponsors of 401(k) plans will be able to adopt the conversion option in 2010. As with any new law, there are a number of unanswered questions concerning the implementation of these provisions. And, as you read this report, you can tell by the wording of the bill, the interpretation and options will have to be evaluated by plan sponsors, brokers and TPA’s (Third Party Administrators), to be able to advise employers and employees about the new bills affecting their retirement plans.

Currently, companies, brokers and agents are busy evaluating, interpreting and advising clients on changes in the new Federal health care laws and rules changing in 2010. This new law regarding pension plans is another change in government law, altering the rules that affect most people pay for health insurance, pension plans and taxes. 

My concern, as well as those of my peers based on our discussions, is the costs to health carriers in implementing new rules and regulations. And that pension plans will incur additional costs to implement the new changes and rules. Ultimately the costs may be paid by all participants and sponsors.

As always recommended, consult with your advisors on any questions about these changes, and how it may affect your coverage and future needs as well as future taxes.  Also discuss with your tax advisor, the option of rolling into a Roth IRA, as any conversion of qualified plans into Roth plans will be a taxable event now for future “tax-free” income later.

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investments, Inc. He can be reached at (661) 254-7633. His column reflects his own views and not necessarily those of The Signal.


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