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Treasury Won’t Ease Mandatory 401(k) Withdrawal Rules for 2008


By Jeff Plungis

Dec. 19 (Bloomberg) -- The U.S. Treasury Department won’t change rules on mandatory withdrawals from 401(k) plans for 2008, forcing many retirees to draw down accounts after large stock-market losses.

Congress approved legislation Dec. 11 that will defer required distributions in 2009, but it didn’t address retirees who have had to take distributions this year, when the Standard & Poor’s 500 Index has lost 35 percent. Account holders over the age of 70 and a half are required to take a minimum withdrawal based on Internal Revenue Service tables.

President George W. Bush is expected to sign the legislation into law, Treasury Assistant Secretary for Legislative Affairs Kevin Fromer wrote in a Dec. 17 letter to Rep. George Miller, a California Democrat and chairman of the House Education and Labor Committee. The Treasury Department and Internal Revenue Service determined any further change “should not be undertaken,” Fromer said, because implementation would be “complicated and confusing for individuals and plan sponsors.”

Congress thought the Treasury Department would address 2008 distributions through regulation, Education and Labor Committee spokesman Aaron Albright said in a statement. Lawmakers will work with the administration of President-elect Barack Obama on other ways to provide “permanent relief,” he said.

“We are disappointed that the Treasury Department declined to act,” Albright said. Congress acted with the “understanding that Treasury was actively working on a solution for this tax year.”