401(a)(9) distributions from rollover in DB Plan

[JAY21]

Do we have guidance on how a rollover account in a DB plan is treated for 401(a)(9) calculation purposes. The calculation for the DB accruals is different now than for a DC account balance (years ago there was some support for calculating them on the "account balance" method).

So does a rollover from an outside plan within a DB plan get treated like a DC account balance for the calculation rules ?

[Blinky the 3-eyed Fish]

No (answer to your last question).

[Mike Preston]

It doesn't?

[Blinky the 3-eyed Fish]

The rollover is part of the DB assets. The DB plan must use the annuity distribution method. I haven't found anything that allows for consideration of the rollover any differently. Mike, if you have, please enlighten me.

[Mike Preston]

Well, I don't have any right now, so I have no specific reason to research it, but I could have sworn that a rollover without annuity conversion rights has no "annuity" that it can elect and therefore defaulted to account balance RMD's. Maybe I'll post it on the ACOPA list if nobody here adds to this thread.

[Blinky the 3-eyed Fish]

I am not sure I follow. Once a rollover is made into the DB plan, that rollover money, no matter the source it came from, is subject to the QJSA rules. Why wouldn't it have an annuity attached to it?

Or are you saying because it's a lump sum amount, how would you figure out what the annuity value is? Actuarial equivalents is how I made the conversion for the one client I had to deal with this once. I couldn't think of any other way.

I look forward to your ACOPA post and Jeff Wadle's three page answer.

[Belgarath]

I agree with the fish. Had this question the other day, and I couldn't find any authority permitting the account balance calculation method for the rollover money.

I imagine this makes the RMD calculations more difficult in a situation where someone makes an in-service withdrawal of part of the rollover funds. Fortunately, our actuary calculates these RMD's!

[Blinky the 3-eyed Fish]

For the edification of all, those responding to the question on the ACOPA board say the IRS would treat the rollover balance in a DB plan under the account balance method. The reasoning is that the rollover balance would be considered a 414(k) account and treated as a DC plan under 1.401(a)(9)-8 A-1.

I personally had not considered a rollover account to be an automatic 414(k) account, but I see the logic in that.

[Belgarath]

Interesting. I'll buy that. Thanks for the info!

So this is going to require (and not be optional) separate RMD calculations for the accrued benefit, right? One using the annuity method for DB, and one using the account balance method for the rollover portion?

[Mike Preston]

I have confirmed, informally, that the IRS considers a rollover in a DB plan to be a DC plan within a DB plan, ala 414(k), and therefore the cite that Blinky posted is intended to cover a "run of the mill" rollover account.

Kind of interesting how this is dovetailing with that other thread that deals with converting a rollover into an annuity at actuarial equivalent rates.

[Belgarath]

I never thought to look, but here's the IRS LRM language for anyone who is interested. While I didn't make the leap from a rollover account to it automatically being considered a 414(k), at least the language is there when you reach that stage.

2.3 Forms of Distribution. Unless the participant’s interest is distributed in the form

of an annuity purchased from an insurance company or in a single sum on or

before the required beginning date, as of the first distribution calendar year

distributions will be made in accordance with sections 3, 4 and 5 of this article. If

the participant’s interest is distributed in the form of an annuity purchased

from an insurance company, distributions thereunder will be made in accordance

with the requirements of § 401(a)(9) of the Code and § 1.401(a)(9) of the

regulations. Any part of the participant’s interest which is in the form of an

individual account described in § 414(k) of the Code will be distributed in a manner

satisfying the requirements of § 401(a)(9) of the Code and § 1.401(a)(9) of the

regulations that apply to individual accounts.