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Grandfathered 403(b) minimum distribution


Guest Al

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I am 75 and now into my 403(B) grandfathered money. VALIC is using a "50% Rule" [taking 51% (yes, 51%) of the pre-'87 money and using the annuity due formula with my single life age (as time) instead of joint with my wife as the divisor]. TIAA/CREF has never heard of this. Is there such a thing (i.e. 50% Rule)?

I am contemplating moving my 403(B) from VALIC to TIAA/CREF and would like the same benefit and if I could locate the citation, etc., I might have some foot to stand on.

HELP.

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Al

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  • 1 month later...
Guest Brent Rowell

I do not believe there is any basis....

In the old days (before age 70 1/2 etc.) Most insurance companies established internal rules to force payouts.

I suspect this is what Valic has done and suggest you check with TIAA-CREF or other annuity provider before you move the money

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I believe the pre-1987 account balance is subject to the old MDIB rules. There was little interpretation of those rules, but it was generally thought that they required distribution under an arrangement where the present value of the payments to be made to the participant must be more than 50% of the present value of benefits made to the participant and his/her beneficiary.

Try looking at Rev Rul 72-241 and Rev Rul 73-239 to see if they help.

Good luck!

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For what it's worth, the 403(B) examination guidelines state as follows with regard to the pre-1987 balance:

  • Prior law (generally requiring distributions by the end of the calendar year in which the participant attains age 75) would apply to pre-1987 accruals. If records are not kept, the entire account balance is subject to § 401(a)(9). The minimum distribution incidental benefit ("MDIB") requirement applies to the entire account balance, although prior law applies to the pre-1987 account balance in this regard. See § 1.403(B)-2,Q&A-3 of the proposed regulations.

Thus, you would be subject to both the age 75 distribution rule, and the MDIB rule (which required that at least 50% of the actuarial value go into the lifetime benefit) with respect to pre-1987 balances.

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Employee benefits legal resource site

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The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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