Non-Governmental 457(b) SECURE Amendment - RMDs

[Christine Roberts]

Has anyone seen language from FIS Relius?  (Yes, I posted on that board as well.)  Or any other source?  I believe FTWilliam has a SECURE Amendment for its NQ plans but have not seen it; am also wondering if there is other amendment language available out there.  The amendment is due to be adopted by year end.  

[Belgarath]

FIS has posted a SECURE Act amendment that can be used for tax-exempt 457(b) Plans. I believe it was posted back in May or early June.

[Christine Roberts]

Thanks.

[Patricia Neal Jensen]

Greetings, Friend!

 

We (FuturePlan) use Relius corporately and I am on a call this afternoon regarding his among other things.  I will let you know if I hear anything different than Belgrath's post.

Patricia

[Cassopy]

Are the amendments that you are seeing including the changes under Section 401 of the SECURE Act (re beneficiary RMDs)? 

I have noticed that a few of the SECURE Act amendments include language incorporating the changes under Section 401(a)(9)(H) into the 457(b) plan, but in the preamble to the proposed regulations, the IRS noted that "[S]ection 401 (a)(9)(H) does not apply to an eligible deferred compensation plan under section 457(b) maintained by an organization that is not an eligible employer described in section 457(e)(1)(A) (because such a plan is not an eligible retirement plan described in section 402(c)(8)(B))."

Any idea why some vendors are taking the position that 401(a)(9)(H) applies to tax-exempt 457(b) plans?

[EBECatty]

I don't see the quoted language in the preamble to the proposed RMD regulations, but here's an excerpt from a comment letter from the SPARK Institute summarizing the issue as I understand it:

Application of 10-Year Rule to Non-Governmental 457(b) Plans. There has been some confusion as to whether or not the SECURE Act’s 10-year rule applies to section 457(b) plans of non-governmental entities. The reason for this confusion is that Code section 401(a)(9)(H)(vi) states: “For purposes of applying the provisions of this subparagraph in determining amounts required to be distributed pursuant to this paragraph, all eligible retirement plans (as defined in section 402(c)(8)(B), other than a defined benefit plan described in clause (iv) or (v) thereof or a qualified trust which is a part of a defined benefit plan) shall be treated as a defined contribution plan.” The cross reference to Code section 402(c)(8)(B) suggests that, perhaps, section 457(b) plans of non-governmental entities would not be treated as a defined contribution plan, and thus may not be subject to the 10-year rule.

We believe most have read the quoted language above as not exclusive, that is, it confirms that IRAs are treated as defined contribution plans, but does not serve to exclude non-governmental 457(b) plans. Such plans are subject to the 401(a)(9) rules, and most 457(b) plans are defined contribution plans, as that term is usually understood.
 
The Proposal does not address this question directly, except to confirm that all 457(b) plans are subject to the RMD rules under Code section 457(d), and laying out a set of rules that apply to “defined contribution plans” in the -5 portion of the regulations. In Footnote 1 of the preamble, the Service references Code section 402(c)(8)(B)(iv) and (v), but does not provide further guidance on non-governmental 457(b) plans. 
 
In any event, we recommend that the Service confirm in the final regulation that all section 457(b) plans, except those that are defined benefit plans, are treated as defined contribution plans for purposes of the SECURE Act changes described in Code section 401(a)(9)(H), which includes the 10-year rule.

[Cassopy]

Thanks EBECatty, that is the type commentary I am seeing as well.

And I misspoke earlier, the footnote I quoted above is from the final regulations to Section 401(a)(9) that were issued in November 2020, not the proposed regs. See Footnote #2 on page 2: https://www.govinfo.gov/content/pkg/FR-2020-11-12/pdf/2020-24723.pdf (85 Fed. Reg. 72473) 

I do wonder why the Feb 2022 proposed 401(a)(9) regs didn't include the same footnote...instead, they include a discussion of eligible retirement plans at Footnote #1 without expressly addressing the applicability of Section 401(a)(9)(H), which is maybe is a step toward backtracking from the position in Footnote #2 of the Nov 2020 final 401(a)(9) regs...?

Either way, notwithstanding the not so great drafting of Section 401(a)(9)(H)(vi), I am reticent at this point to recommend adopting any 457(b) plan amendments that include the new 401(a)(9)(H) provisions in the absence of any indication/guidance from Treasury that negates Footnote #2.