Transcript of Online Discussion About the Pension Protection Act
Note: Please see the featured content to the right for the most up-to-date information about the Pension Protection Act of 2006 and subsequent regulations and guidance provided by the Treasury.
In August 2006, President Bush signed into law the Pension Protection Act, which includes two provisions that the Human Rights Campaign worked diligently to secure. The act includes provisions allowing non-spouse beneficiaries to roll over retirement benefits and adds non-spouse beneficiaries to the retirement plan hardship distribution rules. The two provisions extend important financial protections to gay, lesbian, bisexual and transgender Americans who name non-spouses as their retirement plan beneficiaries.
In our online discussion on Aug. 24, 2006, financial expert Ed Koczorowskiof the Lincoln Financial Group joined HRC staff to discuss how these changes will affect you and your partner.
Transcript of Our Online Discussion
hrc_anastasia: Welcome to the Human Rights Campaign online discussion on the 2006 Pension Protection Act! I’m Anastasia Khoo, Director of Marketing, and I will be moderating today’s discussion.
Before we get started, I want to thank you all for participating. We received an overwhelming response to this discussion and also received many questions in advance. You can submit questions at any time, but please note that we many not be able to get to cover all of your questions today. I hope that we will be able to cover the basics of this bill and give you a better sense of how it will affect you and your family.
I also need to provide a legal disclaimer for this discussion which is: The information provided in this on-line forum is for educational purposes only and represents the opinions of the guest presenter. The information does not represent the opinion of the Human Rights Campaign nor does it constitute financial advice by the Human Rights Campaign for any individual. HRC does not assume responsibility for the accuracy of information provided by the guest presenter. Each individual should seek the advice of his or her own lawyer or financial advisor regarding the advisability of any action.
Ok, now let’s get started. Today, we are joined by Edward Koczorowski. He has more than 17 years experience as a successful fee based financial planner for Lincoln Financial Advisors in Chicago. Lincoln Financial Advisors is part of Lincoln National Corporation, a Fortune 500 company that scored 100% on our annual report card, the Corporate Equality Index, which measures corporate America’s treatment of gay, lesbian, bisexual and transgender Americans. You can find more information about Lincoln Financial Advisors at http://www.lfg.com/. He specializes in coordinating and modeling solutions encompassing: Personal Financial Independence Strategies; Estate Planning, Family Legacy and Charitable Giving Techniques; Business Succession and/or Dissolution Planning.
Ed is dedicated to expertly addressing and resolving the distinctive financial concerns of individuals and businesses and their supporters in the GLBT community. He is also a Governor on the Board of the Human Rights Campaign.
Please note that the opinions expressed by Ed in this online discussion are his personal opinions based on current information and not necessarily those of the Human Rights Campaign or Lincoln Financial Advisors. None of the statements or opinions in this discussion are to be taken as legal advice. You should consult your attorney and tax advisor for specific advice on your situation. You should use the specific information about your retirement plan provided by your employer for planning purposes.
Welcome Ed!
Ed: Thank you! Great to be here.
hrc_anastasia: We are also joined by HRC’s legislative counsel, Lara Schwartz, who has been working on the provisions for four years and will be on-hand to answer any other questions about the act. Welcome Lara!
HRC_Lara: Thanks, Anastasia. Welcome, everyone!
hrc_anastasia: Ed, could you start off by giving us the basics of this bill?
Ed: The "Federal Pension Protection Act of 2006" was passed August 17, 2006. It consists of 904 pages of comprehensive pension reform and will go into effect December 31, 2006. Arguably, it marks some of the most sweeping changes to pension laws in many years. There are many significant provisions in the bill affecting seven major areas: pension funding provisions; hybrid/cash balance provisions; defined contribution provisions; executive compensation provisions; reporting and disclosure provisions; plan distribution provisions and health and medical provisions. The purpose of today's discussion is to explore two hard-fought HRC-backed provisions that fall in these last two categories: plan distribution provisions and health and medical provisions that can directly impact the lives of GLBT Americans:
The first provision, called 'Non-Spousal Rollover,' allows the transfer of an individual's retirement plan benefits, like a 401(k), to an Individual Retirement Account (IRA) for a non-spouse beneficiary like a domestic partner, sibling, parent, cousin or anyone else when the individual dies. * In the past, unless you were the legally recognized spouse of the deceased, you were forced to withdraw the amount as a lump sum and you faced immediate tax penalties which would eat away at the savings amount intended for retirement.
The second provision, known as 'Hardship Distribution,' allows individuals who list their same-sex partner or other non-spouse beneficiary under a 401(k) plan the ability to tap into their retirement funds in the case of certain medical or financial emergencies of the beneficiary. In the past, the federal law only permitted such withdrawals for employees' legally recognized spouses or dependents.
In order to understand how these provisions affect our community, it is essential to understand that there are two basic types of retirement plans. Pensions (also called defined benefit plan125s) and 401k - 403b - IRA plans (also called defined contribution plans).
HRC_Lara: These provisions that Ed described represent four years of work here at HRC. We reached out to members on both sides of the aisle, financial services companies, and others to help make this happen. We're proud that GLBT couples and many other Americans will have greater financial protections when they need it most.
Ed: Pensions typically are promises to pay a retirement benefit to an individual under certain terms. The pension plan controls the funds and may restrict how and to whom they may be paid and may limit beneficiaries. 401k's, 403b's and IRA's are typically actually owned by the participant. The participant controls to whom they may be paid and chooses their beneficiary. NONE OF THE PROVISIONS OF THIS ACT WILL HELP YOUR PARTNER UNLESS THEY ARE NAMED AS A BENEFICIARY IN YOUR PLAN. THESE ASSETS ARE NOT DIRECTED BY YOUR ESTATE DOCUMENTS.
hrc_anastasia: Ed, we have had a lot of questions sent in via e-mail. How about we start off with some of these?
Ed: Great. Fire away!
hrc_anastasia: This is great news for all of us - I've had the privilege of knowing a Capitol Hill staffer who's been working on this bill - thank you HRC and our friends on Capitol Hill. My question is basic: when's the effective date of this historic measure?
Ed: The amendments made by this section shall apply to distributions after December 31, 2006.
hrc_anastasia: via e-mail: Without a legal document stating who my partner is, how will this new pension law recognize him as the beneficiary for my retirement accounts, and thus not force him to withdraw the entire account should I die before him?
Ed: This amendment covers distributions of "defined contribution plans like 401k's, 403b's and IRA's. It does not specifically address Government Pensions or Union Pensions that do not address non-spousal distributions. For plans it does cover, the ONLY way you identify a beneficiary is filing a beneficiary form provided by your plan sponsor.
hrc_anastasia: via-email: I was wondering how this effects Federal Employee Pensions. I am a federal employee and only surviving spouses can obtain a fed employee's pension. Will this change things and allow same-sex partners to receive the govt. pension now?
Ed: If the pension currently does not allow distributions other than to a spouse, this Act won't help you unless it is changed. The scope of this amendment is limited to situations where a non spousal beneficiary is currently allowed under the terms of the plan. It doesn't have the power to change the terms of a pension plan if such beneficiaries are not allowed. However, if one of your options is to take your pension as a lump sum and move it to an IRA, this Act applies.
HRC_Lara: This act does not require employers to provide pension benefits to domestic partners. However, HRC supports the Domestic Partner Benefits and Obligations Act, which would ensure that all federal employees receive equal compensation for equal work. Visit http://www.hrc.org/ to email your member of Congress in support of this important bill.
tom_in_dc: Under the 'hardship distribution' is the dependent of a non-spouse covered by the new law? (child of partner of the 401k plan holder)
Ed: The treasury dept. will issue regulations in the next 6 months or so clarifying issues like this one.
hrc_anastasia: This just came in via-email: I am a union member, and my pension and medical coverage is through the union. As of now, my partner is not, and cannot be, covered by my plan. Any pensioner can marry and even inherit kids with that marriage, and they are all automatically covered. I think that is pretty unfair. Is there anything being done in this direction?
Ed: You're right, it's unfair, unfortunately this amendment does not change specific pension plan terms. Spousal Pension Plan benefits are but one of many benefits GLBT's lose by not being able to be married.
MikeMalone: Will these provisions be implemented automatically on Jan 1, 2007 by all plan sponsors?
Ed: The law will be quite broad-sweeping, but it's up to the individual plan participants to name their beneficiaries.
rkkinsey: Hello, Do you think that in the future courts may come to view retirement assets of domestic partners the same as straight divorces in the event of a dissolution of the relationship?
HRC_Lara: Many courts have already recognized that people in longstanding same-sex relationships have some of the protections as married different-sex couples. For instance, courts have recognized a non-biological parent's right to visitation of a child, or the right to share property or receive child support. What a court will do with regard to retirement savings is an open question, and courts could come to different conclusions.
David37216: My life partner and I have already made one another the beneficiaries under our respective IRA's, SEP and 401(k). How does the new Act improve our positions?
Ed: Nothing changes with the IRA and SEP -- you're already allowed to stretch distribution. The 401(k), however, can be rolled into an IRA (in the name of the deceased partner), everything can be stretched out.
hrc_anastasia: via-email: I am retired and my 401k plan has been rolled over into an IRRA. My partner is the sole beneficiary of my IRRA. Will the provisions of the new law apply to his taking distributions from my IRRA?
Ed: Good for you, you've already addressed this... in the past, an inherited 401k would have had to be distributed in one lump sum to a non-spousal beneficiary causing a huge tax "hit". With this Act, an inherited 401k balance can be rolled into an IRA that is in the name of the person who died allowing for distribution of the assets to be made in one lump sum, over 5 years OR over the life of the beneficiary. THIS IS A HUGE TAX BENEFIT.
McClintick: as a small business owner do I need to contact our 401(k) provider to ensure things will work properly for my employees
Ed: 401(k) administrators should be aware of these new provisions, however it couldn't hurt to check.
kbgo2001: This is amazing. Thank you, HRC! How did you do it? How did you manage to get these GLBT-friendly provisions into the bill under current political conditions?
HRC_Lara: Thanks! We're so proud of our work on this Act. HRC worked hard to show members of Congress what we all already know: protecting retirement savings just makes sense. It makes business sense, as the many companies who have fair retirement plans know. It makes good sense to investment companies. And it helps many non-GLBT people too. Most of all, HRC did this with YOUR help. By sharing stories of how real people are affected by the tax penalties under the old law, we made a case for more fair treatment.
hrc_anastasia: Just got one in via email about health benefits: What about health benefits? I have been with my wife for 10 years and my company does not offer health benefits. So what about that? It would be so beneficial for us and other GLBT community. And if this is available please excuse my ignorance.
Ed: This act only addresses certain pension and retirement plans. It is silent as to health care coverage.
HRC_Lara: Equal health benefits are critical to our community. Fortunately, more and more companies-including over 50% of the Fortune 500-are providing domestic partner benefits. HRC has been working with employees and corporations to increase coverage for domestic partners. Visit HRC's Workplace Project at www.hrc.org/workplace for resources to improve your company's benefits policies.
hrc_anastasia: This seems to be a question that a lot of people have: Does this mean that when I die my IRA can be rolled over into my domestic partner's IRA?
Ed: No, it means that if your IRA names your partner as beneficiary, that they have additional options for distributions. Your partner may not merge this IRA with their own.
hrc_anastasia: Just so we are all clear, does this mean that this is included for every state?
Ed: Yes. It's a Federal law after 12/31/06.
HRC_Lara: But there is still so much work to be done. HRC is working to eliminate the many laws that discriminate against GLBT families. Visit www.hrc.org/actioncenter to get involved in our continuing fight for full equality.
cyn: Hi, Does this law make the same provisions for roth IRAs
Ed: It doesn't specifically address Roth IRAs. Future regulations could make this clearer.
tom_in_dc: Would this new law be negated by the Federal Marriage Amendment (if passed) since it imitates a "legal consequence" of marriage?
Ed: No. This concerns non-spousal beneficiaries. A lot of people are included in the class of non-spousal, not just partners. Friends, children, or siblings, for example.
hrc_anastasia: This is a great question that came in via e-mail:We are going to be able to participate during the on-line discussion but wanted to ask a question. We are a married couple (married in Massachusetts...at least) and are curious to know just how this new pension provision would impact married, same-sex couples in Massachusetts. As we are not married, for federal purposes, what type of evidence do we need to establish a "domestic partnership" to gain the protection of this new federal law?
Ed: This is a Federal Law. Remember that the Federal Government does not recognize your marriage However, this act supersedes state law. If your plan allows for non spousal beneficiaries, all you need for it to apply is to name your partner as a beneficiary of your plan.
MikeMalone: So as a Benefits Executive, is there anything specific that needs to be done as employer regarding these provisions?
HRC_Lara: The Pension Protection Act does not create new requirements for employers. However, to make sure that your GLBT employees benefit from the Act, you need to make sure that your plan allows them to designate domestic partners as beneficiaries.
tom_in_dc: So, it is essential to have an existing IRA under the pension holder's name that the 401k can roll over to, right?
Ed: You don't have to have a pre-existing IRA. One can be created at the time of the participant's death.
hrc_anastasia: Another one via email: My lover is a retired milatary pension receiver. He also gets SSI. He wants to know how dose this bill affect his benifits. He is 76 and in poor health. Basically I take care of him and can not have and 8 to 5 job. He is concerned what will happen to me if he dies.
Ed: This Act will not change his benefits or allow him to designate a beneficiary that the plan does not currently allow.
HRC_Lara: This act does not affect military or social security benefits. It is wrong for someone who served his country equally and paid his taxes equally to see his family treated so unequally. HRC is working to eliminate the laws-over 1,000 of them at the federal level alone-that discriminate against gay and lesbian couples. Please sign up for our Action Center to learn about how to get involved. In the meantime, it's important that you and your partner meet with a financial planner, who will help you make the best use of the resources that you have and provide security for your future.
gwendolyn: Does a named beneficiary take precedence over estate plans outliined in my will?
Ed: Yes. Designated beneficiaries are essential. A named beneficiary always takes precedence over any estate document.
rob67: Does this law apply to both regular 401-k's and related profit-sharing plans, as long as the partner is named the beneficiary?
Ed: In short, yes.
hrc_anastasia: One more via email: I have a pension with Glaxo-SmithKline (I am no longer employed with them) and could not previously add my partner as the beneficiary. Does this Act make it possible for me to do so now?
Ed: This depends on the terms of the plan through Glaxo-SmithKline. That pension plan determines who you can name as beneficiary. If the pension plan currently does not allow distributions other than to a spouse, this provision doesn't help you. The scope of this amendment is limited to situations where a non spousal beneficiary is currently allowed under the terms of the plan. It doesn't have the power to change the terms of an existing pension plan if such beneficiaries are not allowed. However, if one of your options is to take your pension as a lump sum and move it to an IRA, this Act applies.
HRC_Lara: HRC's Workplace Project is working to promote equal treatment for GLBT employees in a number of ways, including retirement savings. Visit www.hrc.org/workplace to find out about how to help your employer catch up with this new law.
hrc_anastasia: One more via e-mail!
My partner of 14 years is a Mexican national. How does this new IRA rollover law address having an alien partner? How would a beneficiary residing in a foreign country access the funds? What about legal versus illegal residence status?
Ed: You generally need a valid social security number or a tax identification number in order to be named a beneficiary or for benefits to be paid under any retirement plan.
hrc_anastasia: This one is just in from San Francisco:
So glad to hear about how hard HRC had been working to add additional protections to the retirement pension act. Thank you for that and am proud to be a sponsor. The question I have is, Will this act include domestic partners with partners in city jobs, in particular San Francisco Police Department?
Ed: If any pension plan currently allows benefits to non-spouses, this applies. This Act does not have power to change terms in existing pensions if non-spouse beneficiaries are not currently addressed. However, if you can take a lump sum distribution and roll it into an IRA, this Act really helps you.
cyn: My partner and I already have each other as beneficiaries on our plans, what changes will this law provide in that case?
HRC_Lara: If your plans are 401(k)s, then you will see a decreased tax penalty on inheriting the other partner's plan-- but here's hoping that this doesn't happen for a long, long time!
hrc_anastasia: This is a good one: could this new policy pave the way for social security spousal benefits for gay and lesbian couples......my partner and i have been together for over 23 years and the lack of spousal benefits is absurd (especially given the fact that i'm self-employed and have been paying into this for my entire career).....shouldn't i be able to dictate where this money goes after my death???
Ed: We can only hope that this first step is the vanguard of a new way of fair thinking when it comes to providing equality for all Americans.
HRC_Lara: This policy is one step in the long struggle to correct the injustice that GLBT families face-including that same-sex couples pay the same amount of Social Security but do not receive the same benefits. HRC is working to promote equity in Social Security and over 1,000 other federal benefits and protections. To get involved, visit www.hrc.org/actioncenter.
hrc_anastasia: Thanks to all of you for participating, we are out of time for today. I hope you’ve found this a great start to a better understanding of this bill. If you haven’t already done so, you can read more about the bill and find a transcript of this discussion available on Friday at www.hrc.org/pensionbill.
For more information on this issue, you can also listen to a discussion on our new radio show, The Agenda with Joe Solmonese, available on XM Satellite Radio. Listen to the clip at www.hrc.org/theagenda.
That’s all the time that we have for today. I’d like to thank Ed for taking the time to be with us today. You’ve been incredibly helpful! Thanks also to Lara for joining us!
Ed: I'm honored to be included in the great work HRC is doing.
HRC_Lara: Thanks. Thanks, Ed, for your help!
hrc_anastasia: If you have any other questions or feedback about the chat, please e-mail us at pension@hrc.org. Thanks everyone and have a great day!