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CCH® PENSION — 03/5/12

FAA funding law permits rollover of amounts received in airline carrier bankruptcy

The Federal Aviation Administration (FAA) Modernization and Reform Act of 2012 (P.L. 112-95), signed by the President on February 14, 2012, contains provisions permitting qualified airline employees to roll over to an IRA amounts received in an airline carrier bankruptcy. The legislation was passed by the House on February 3, 2012 and by the Senate on February 6, 2012.

Under the law, if a qualified airline employee transfers any portion of an airline payment amount to a traditional IRA within 180 days of receipt (or, if later, within 180 days of the date of the enactment of the new law), the transferred amount is treated as a qualified rollover contribution. As a result, the employee making the transfer may exclude the transferred amount from gross income for the tax year in which he or she received the airline payment amount from the airline carrier. Moreover, those who previously made such a contribution to a Roth IRA may recharacterize all or a portion of it as a rollover contribution to a traditional IRA by transferring the funds, plus attributable earnings or losses, from the Roth IRA to a traditional IRA, in a trustee-to-trustee transfer.

The definitions of "qualified airline employee" and "airline payment amount" are the same as under the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA; P.L. 110-455).

Under WRERA, a qualified airline employee is an employee or former employee of a commercial passenger airline carrier who was a participant in a defined benefit plan maintained by the carrier that: (1) is a qualified plan under Code Sec. 401(a) and (2) was terminated or became subject to the benefit accrual and other restrictions applicable to plans that are maintained by commercial passenger airlines and are subject to the alternative funding schedule provided by Act Sec. 402(b) of the Pension Protection Act of 2006 (P.L. 109-280).

An airline payment amount is any payment of any money or other property payable by a commercial passenger airline to a qualified airline employee: (1) under the approval of an order of a federal bankruptcy court in a case filed after September 11, 2001, and before January 1, 2007; and (2) in respect of the qualified airline employee's interest in a bankruptcy claim against the airline carrier, any note of the carrier (or amount paid in lieu of a note being issued), or any other fixed obligation of the carrier to pay a lump-sum amount.

However, top executives cannot take advantage of these rules.

Source: P.L. 112-95.

For more information, visit http://www.wolterskluwerlb.com/rbcs.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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