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Pension Law Includes Important Protections for Same-Sex Couples

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    Pension Law Includes Important Protections for Same-Sex Couples Under Federal Law: Human Rights Campaign Helps Secure Key Provisions to Assist GLBT and Other
    Message 1 of 1 , Aug 17, 2006
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      Pension Law Includes Important Protections for Same-Sex Couples Under
      Federal Law: Human Rights Campaign Helps Secure Key Provisions to
      Assist GLBT and Other Americans

      FOR IMMEDIATE RELEASE from HRC
      August 17, 2006

      WASHINGTON - The Federal Pension Protection Act passed by Congress and
      signed into law today by President George W. Bush contains two key
      provisions that will extend important financial protections to
      same-sex couples and other Americans who leave their retirement
      savings to non-spouse beneficiaries. The bipartisan provisions in the
      bill are a step forward in equality and stem from a continuous effort
      led by the Human Rights Campaign.

      "There is a large group of Americans that are left behind in
      traditional pension benefit models. We need to do better to keep
      these groups from falling through the cracks," said Senator Gordon
      Smith (R-OR). "I am pleased that the pension reform legislation takes
      an important step to fill this gap by equalizing treatment in
      retirement savings vehicles for non-spouse beneficiaries."

      "We need to address the economic and legal barriers that affect many
      American families -- from providing equal access to family law, to
      equal opportunities in the workplace. All families need to be able to
      plan and save for their future," said Congressman Benjamin L. Cardin
      (D-MD).

      "For gay couples and all Americans with non-spouse beneficiaries,
      death and taxes weren't only certain, but also times of great and
      unequal financial difficulty. Today marks an important day for
      fairness under the law in America," said Human Rights Campaign
      President Joe Solmonese. "For four years, the Human Rights Campaign
      worked closely with members of Congress to secure these provisions and
      carefully guide them through the political process. In a challenging
      political climate, we persevered and helped to secure critical federal
      protections that will make difficult times for domestic partners a
      little easier."

      The first provision allows the transfer of an individual's retirement
      plan benefits to a domestic partner or other non-spouse beneficiary
      (sibling, parent, child, etc.,) when the individual dies.
      Specifically, the surviving partner (or other non-spouse beneficiary)
      will now be able to transfer his or her deceased partner's retirement
      funds into an Individual Retirement Account (IRA) and either draw down
      the benefits over a five-year period, or over his or her own life
      expectancy. In the past, surviving same-sex partners or other
      non-spouse beneficiaries in similar situations were typically forced
      to withdraw the entire amount as a lump sum and incur immediate tax
      charges. In addition, this action often bumped the survivor into a
      higher tax bracket because the withdrawal was counted as taxable
      income to the beneficiary.

      The second provision, which addresses retirement plan hardship
      distributions, allows gay couples (and others with non-spouse,
      non-dependent beneficiaries - siblings, parents, children, etc.,)
      similar access to laws that permit people to draw on their retirement
      funds in the case of a qualifying medical or financial emergency. In
      the past, the federal law covered only the spouses or dependents of
      employees when it came to accessing retirement funds during an
      emergency.

      "This bill provides much needed support for non-spousal beneficiaries
      and will have meaningful impact," said David Ratcliffe, National
      co-leader of Merrill Lynch's LGBT Professional Network, and Director
      of the firm's Center for Philanthropy and Nonprofit Management.
      "Specifically, passing these provisions means that when families are
      at their most vulnerable, they will have new options under the law
      that should alleviate some of the stresses that come in to play with
      the loss of a loved one."

      A fact sheet on the difference this measure makes in the lives of gay,
      lesbian, bisexual and transgender Americans can be found at
      http://www.hrc.org/pensionbill/ .

      The pension reform legislation (H.R. 2830/S. 1783) was introduced on
      June 9, 2005, and passed Dec. 15, 2005, by a 294 to 132 vote. It was
      introduced in the Senate on Sept. 28, 2005, and passed Nov. 16, 2005,
      by a 97 to 2 vote. Following passage in both Houses, several months
      were spent negotiating differences between the two bills. Final
      Congressional action was taken Aug. 3, 2006, when the Senate passed by
      a 93 to 5 vote an amended version of the House legislation. President
      Bush signed the measure into law on August 17, 2006 at the White House.

      The Human Rights Campaign is the largest national lesbian, gay,
      bisexual and transgender political organization with members
      throughout the country. It effectively lobbies Congress, provides
      campaign support and educates the public to ensure that LGBT Americans
      can be open, honest and safe at home, at work and in the community.

      -30-


      Two Key Provisions in Pension Protection Act Secured by
      Human Rights Campaign:

      Working without fanfare and very closely with members of Congress for
      more than three years, the Human Rights Campaign secured two important
      protections that assist gay, lesbian, bisexual and transgender
      Americans in the Pension Protection Act signed into law on August 17,
      2006. The Act includes provisions allowing non-spouse beneficiaries
      to roll over retirement benefits, and adding non-spouse beneficiaries
      to the retirement plan hardship distribution rules. The two
      provisions extend important financial protections to same-sex couples
      and other Americans who name non-spouses as their retirement plan
      beneficiaries.

      Allowing Non-spouse Beneficiaries to Rollover Pension Funds (Sec 829)
      The first provision allows the transfer of an individual's retirement
      plan (401k, etc,) benefits to a domestic partner or other non-spouse
      beneficiary (sibling, parent, child, etc.,) when the individual dies.
      Specifically, the surviving partner (or other non-spouse beneficiary)
      will now be able to transfer his or her deceased partner's retirement
      funds into an Individual Retirement Account (IRA) and either draw down
      the benefits over a five-year period, or over his or her own life
      expectancy. In the past, surviving same-sex partners and other
      non-spouse beneficiaries were typically forced to withdraw the entire
      amount as a lump sum and incur immediate tax charges. In addition,
      this action often bumped the survivor into a higher tax bracket
      because the withdrawal was counted as taxable income to the beneficiary.

      Adding Non-spouse Beneficiaries to Retirement Plan Hardship
      Distribution Rules (Sec 826)

      The second provision, which addresses retirement plan hardship
      distributions, allows gay couples (and others who list non-spouse,
      non-dependent beneficiaries, such as siblings, parents, children,
      etc.,) similar access to laws that permit people to draw on their
      retirement funds in the case of a qualifying medical or financial
      emergency. In the past, the federal law covered only the spouses or
      dependents of employees when it came to accessing retirement funds
      during an emergency.

      Here are some scenarios that better illustrate the differences these
      laws make:

      Under Former Rollover Pension Rules:
      Amy, 61, and Sandy, 63, have been together for 30 years. Amy works for
      a small business with no retirement plan and earns $30,000 a year.
      Sandy works at a company where she has saved for retirement for many
      years. Sandy has a $162,000 balance in her 401(k) plan when she dies
      suddenly. Amy is required to receive Sandy's entire retirement plan
      distribution in one lump sum. As a result, Amy is forced into a 33
      percent marginal tax bracket rather than the 15 percent tax bracket
      she would have been in based on her earned income. Amy's federal tax
      liability for the year goes from $2,980 to $49,360. Because of the
      steep taxes paid on this withdrawal, the total balance received by Amy
      is reduced by tens of thousands of dollars, eating away at the
      resources intended to finance retirement.

      After the HRC-Supported Provision Passes:
      In the same scenario, Sandy's sudden death again leaves Amy
      devastated. But under the new law, Amy is able to roll Sandy's 401k
      funds over into an inherited IRA where she can either take them out
      over a period of five years or over her own life expectancy. Amy
      avoids a large tax penalty and is able to use Sandy's 401k funds to
      finance retirement as planned.

      Under Former Hardship Rules:
      John and Paul were together for 20 years and had a two-year-old son
      when Paul was diagnosed with cancer. The costs for Paul's treatment
      were high and they needed help. John turned to his 401k plan but under
      the former hardship distribution rules, they did not qualify and were
      unable to withdraw funds from their retirement plan to help them
      during this emergency - something a married couple would have been
      able to do. Instead the couple had to max out their credit cards at
      high interest rates. While Paul survives the cancer, their steep
      credit card payments mean their son's college saving plan is put off
      for years and they are never able to find the same financial footing
      they once had.

      After the HRC-Supported Provision Passes:
      John and Paul are in the same situation. But under the new hardship
      rules, they can now access John's retirement funds to cover the costs
      for Paul's medical bills. Surviving the cancer, Paul, John and their
      son are able to enjoy the rest of their lives together and begin
      saving for their son's college immediately.


      Conclusion:
      Retirement plan funds can provide important protections to families
      even before the plan participant reaches retirement age. However,
      unfair penalties existed for individuals with non-spouse
      beneficiaries. The new provisions passed by Congress and signed by
      the President give all families fairer access to the funds needed in
      times of significant vulnerability.


      For more information visit the Human Rights Campaign website at
      http://www.hrc.org/estateplanning/

      Luis Vizcaino | Phone: 202/216.1547 | Cell: 310/869.5700
      Brad Luna | Phone: 202/216.1514 | Cell: 202/812.8140
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