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House Passes Small Business Jobs Act (Sept 2010)

Instant Insights (Sept. 23, 2010)

House Passes Small Business Jobs Act
On Sept. 23, 2010, the U.S. House of Representatives passed the Small Business Jobs Act, without modification from the bill passed by the Senate on Sept. 16, 2010. The bill awaits the President’s signature which may occur as early as Monday, and will become effective upon signing.

On September 16, we communicated the primary intent of the bill and the provision affecting retirement plans. Namely, the bill will allow 401(k), 403(b) and governmental 457(b) plans to allow participants eligible for a distribution to roll their pretax account balances into a designated Roth account within the plan. Such transactions that occur in 2010 will allow participants the flexibility to pay their resulting tax entirely in 2010, or split the tax 50/50 over 2011 and 2012.

Further details of this provision of the bill include:

• A plan cannot establish a designated Roth account solely for purposes of receiving these rollovers.
  • A designated Roth source must be available for participants’ elective deferrals as well.
• A plan is allowed to add an in-service withdrawal provision that can be conditioned on the participant’s election to have the withdrawal rolled into the designated Roth account in the plan.
  • Pretax elective deferrals are not available for in-service withdrawals prior to age 59½ (or later depending on plan provisions).
• A plan may, but is not required to, add this provision.
  • The provision can be added in 2010 or later years.
  • A plan is allowed to add this provision for 2010 even though the required amendment is not due until sometime in 2011.
  • Most plans do not allow terminated participants to roll amounts into the plan.  A plan wanting to make this available to terminated individuals will need to provide for this in the plan amendment.  (Generally, these individuals could still take a distribution and roll it to a Roth IRA.)

J.P. Morgan Retirement Plan Services’ Legislative/Regulatory Taskforce is already addressing operational issues so that this provision can be made available to plan sponsors and participants as soon as possible. As with any legislation, there are still some details that will need to be clarified by the regulatory agencies. We are working closely with industry groups to monitor developments in this area.

Note to our clients
If you have questions or intend to add this provision to your plan, we encourage you to notify your strategic relationship manager as soon as possible. If your plan does not currently have a Roth provision, it may not be possible to add this feature this year due to the set-up and payroll changes required by you and by J.P. Morgan.

We will share more details of this provision on our next legislative Webcast on Nov. 18, 2010, at 2 p.m. Central time. Look for more detailed information about this Webcast in the future

IRS Circular 230 Disclosure: This communication was written in connection with the potential promotion or marketing, to the extent permitted by applicable law, of the transaction(s) or matter(s) addressed herein by persons unaffiliated with JPMorgan Chase & Co. However, JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, to the extent this communication contains any discussion of tax matters, such communication is not intended or written to be used, and cannot be used, for the purpose of avoiding tax-related penalties. Any recipient of this communication should seek advice from an independent tax advisor based on the recipient's particular circumstances.