Last week we discussed the importance of making sure your plan been amended for changes in legislation in ESOP Planning 2008: Plan Documents and Disclosures. One of the major pieces of Employee Benefits Legislation enacted in 2008 is the HEART Act. Some of the changes were retroactive to 2007 and others are effective January 1, 2009, so you will need to make sure you are complying with the new regulations, determine if any retroactive adjustments need to be made, and ensure that the rules are properly applied going forward. An amendment must be adopted by the end of the 2010 plan year.

The Heroes Earnings Assistance and Relief Tax Act of 2008 (HEART Act) was signed into law on June 17, 2008 to provide benefits for military personnel. The HEART Act includes qualified plan provisions, including the following:

• Additional Benefits For Death or Disability During Military Service –The Heart Act added IRC Section 401(a)(37) to the Internal Revenue Code to provide benefits to participants who die while performing qualified military service as if they had resumed and then terminated employment on the date of death:

  "§401(a)(37) DEATH BENEFITS UNDER USERRA-QUALIFIED ACTIVE MILITARY SERVICE.
  
  A trust shall not constitute a qualified trust unless the plan provides that, in the case of a participant who dies while performing qualified military service (as defined in section 414(u)), the survivors of the participant are entitled to any additional benefits (other than benefit accruals relating to the period of qualified military service) provided under the plan had the participant resumed and then terminated employment on account of death.''

• Permanent Ability to Take Distributions Without Being Subject to the Early Withdrawal Penalty – The HEART Act makes permanent the ability to take distributions without being subject to the IRC Section 72(t) - 10-percent additional tax on early distributions from qualified retirement plans early withdrawal penalty.
  
  
• Ability to Re-Contribute Distributions to an IRA on an After-Tax Basis
  
  
• Differential Pay is Treated as Wages and Reported on the Employee's W-2
  
  
• Military Death Benefits Can be Rolled to a Roth IRA
  
  
• A Deemed Sale is Imposed Upon Expatriation

For more information, here is a summary.