The Worker, Retiree, and Employer Recovery Act of 2008 (“Recovery Act”) waived required minimum distributions (RMDs) for defined contribution plans and IRAs payable in 2009. Generally, RMDs apply to participants who have reached age 70½. Because the standard language in your plan does not allow for such a waiver, each plan will need to be amended; the deadline for amending plans to conform to the waiver rules is the end of the plan year beginning in 2011 (December 31, 2011, for calendar year plans). The IRS has issued sample amendments for this purpose. It has also granted transition relief for certain actions by plans (whether to waive or not to waive 2009 RMDs) that were taken on or before November 30, 2009. Finally, the IRS has provided transition relief to the rollover rules for 2009 RMDs that have previously been distributed.
An RMD may be recalculated annually (an “annual RMD”) or may be part of a series of substantially equal annual installments previously calculated (an “extended RMD”). The annual distribution may consist of both the RMD amount plus an additional amount that can, under pre-Recovery Act rules, be rolled over into an IRA or another qualified plan, including via a direct rollover from the distributing plan.
Sample Amendments. The IRS has provided two alternative sample plan amendments that must be adopted by the plan no later than the end of the plan year beginning in 2011:
- One sample amendment requires distribution of the 2009 RMD unless the participant (or beneficiary) elects not to receive the RMD.
- The other sample amendment withholds distribution of the 2009 RMD unless the participant (or beneficiary) elects to receive the RMD.
Both sample amendments allow plan sponsors to choose whether to permit:
- Direct rollover of 2009 RMDs; or
- Direct rollovers only of 2009 RMDs that are included in a distribution of additional amounts that would be rollover-eligible under pre-Recovery Act rules; or
- Direct rollovers only of the additional amount that would be rollover-eligible under pre-Recovery Act rules
Plan Administration Relief. Recognizing that a plan’s administration of its RMDs in 2009 may not be consistent with the new IRS guidance, the IRS announced that, prior to November 30, 2009, the IRS will not treat a plan as failing to operate in accordance with the terms of the sample amendment. However, after November 30, for the remainder of 2009, the plan must choose which form of amendment it will adopt by the deadline, and administer any remaining RMDs in accordance with the IRS guidance.
Rollover Relief. Recognizing that some participants who may have received a 2009 RMD could have rolled over that amount to avoid taxation, the IRS has extended the normal 60-day rollover period until November 30, 2009, as long as other rollover rules (as modified to permit the direct rollover of the 2009 RMD amount) are met.
Actions Required:
- Consult with your recordkeeper to determine which method (requiring RMD distribution or withholding RMD distribution) the plan followed for 2009 and which method it intends to follow after November 30, and document your choices
- Determine whether or not to permit a direct rollover of the 2009 RMDs remaining, and document your choice
- If desired, prepare notices to participants with 2009 RMDs remaining about their right to elect (whether to receive or not receive) and if permitted their right to roll over the 2009 RMD to avoid taxation; also determine if any notice should be sent to participants who had previously received a 2009 RMD of the extended rollover period
- Schedule a time to amend your plan before the 2011 deadline to conform to your choices
Please contact your employee benefits attorney if you have questions on how the waiver rules may apply to your retirement plan or which choices are best for your plan at this time, as well as to get help documenting your choices, including preparing the appropriate amendment (even if adoption is delayed until a later date).