On May 22, 2008, Congress passed the Heroes Earnings Assistance and Relief Tax Act of 2008 (Heroes Act or HEART Act) which will now go to the President for his signature. A lot of great links here on the Act. Benefits-related provisions are as follows (as taken directly from the Congressional Research Service Summary):
Section 104 – Requires tax-qualified pension plans to entitle survivors of plan participants who die while on active military duty to additional benefits and benefit accruals provided under such plans for participants who resume and then terminate employment due to death. Effective Date: applies to deaths and disabilities occurring on or after January 1, 2007. Amendments required on or before the last day of the first plan year beginning on or after January 1, 2010 (2012 for governmental plans).
Section 105 – Treats differential wage payments to an employee as a payment of wages for income tax purposes. Defines “differential wage payment” as any employer payment to an individual serving on active duty in the uniformed services for more than 30 days that represents wages such individual would have received if such individual were performing services for the employer. Treats an individual receiving differential wage payments as an employee and treats such payments as compensation for retirement plan purposes. Effective Date: Years beginning after December 31, 2008. Amendments required on or before the last day of the first plan year beginning on or after January 1, 2010 (2012 for governmental plans).
Section 107 – Makes permanent the penalty exemption for premature withdrawals from retirement plans for individuals called or ordered to active military duty on or after December 31, 2007. Effective Date: Amendment applies to individuals ordered or called to active duty on or after December 31, 2007.
Section 109 – Allows a tax-free rollover of any military death gratuity and any group life insurance payment to a survivor’s Roth individual retirement account (Roth IRA) or to an education savings account. Effective Date: The provision is generally effective with respect to payments made on account of deaths from injuries occurring on or after the date of enactment. In addition, the provision permits the contribution to a Roth IRA or a Coverdell education savings account of a military death gratuity or SGLI payment received by an individual with respect to a death from injury occurring on or after October 7, 2001, and before the date of enactment of the provision if the individual makes the contribution to the account no later than one year after the date of enactment of the provision.
Section 114 – Allows a tax-free distribution of unused benefits in a health flexible spending arrangement to any member of an Armed Forces reserve component who is ordered or called to active duty. Effective Date: Applies to distributions made after the date of the enactment.
Title IV – Parity in the Application of Certain Limits to Mental Health Benefits Amends the Internal Revenue Code, the Employee Retirement Income Security Act of 1974 (ERISA), and the Public Health Service Act to extend through 2008 parity requirements applicable to mental health benefits offered by group health plans.
(Within the Act, there are also some complicated rules for taxation of expatriates who have benefits under qualified and nonqualified plans which are not summarized here.)
Comments by Senator Grassley (R-IA) regarding passage of the Act:
“Mr. President, the Heroes Earnings Assistance and Relief Tax Act of 2008, the HEART Act, which passed the Senate by unanimous consent today, was a bipartisan effort that incorporates most of the provisions in the Defenders of Freedom Tax Relief Act of 2007, which passed the Senate last December. The HEART Act also makes permanent and expands upon some of the tax relief measures that I coauthored with Senator Baucus in 2003, while chairman of the Senate Finance Committee.
Our men and women who serve in the military make tremendous sacrifices to keep this great Nation safe and strong. Oftentimes, this very service makes taxes complicated and sometimes unfair. It is only right that these honorable men and women get treated fairly under the Federal Tax Code. The Federal Tax Code shouldn’t penalize people for serving their country. . . “
You can access the Joint Committee on Taxation Summary here.
Once the Act is signed by the President, benefits lawyers can add the items above to their lengthy plan amendment lists. . .