Manatee

Thank you very much. Also yes, I was thinking of the lump sum provision.

I've managed to confuse myself on an AFTAP/deemed burn issue. Plan Year = Calendar Year Prior Year AFTAP > 100% because assets exceed funding target, so prefunding balance does not have to be subtracted from assets for AFTAP (but not FTAP) purposes. Current Year AFTAP not certified by 4/1, so presumed AFTAP becomes last year's AFTAP minus 10%. Presumed AFTAP is over 90%. No deemed burn applies at this point. Valuation is run in May. Current year assets are less than funding target, so prefunding balance must be deducted from assets in AFTAP calculation, resulting in an AFTAP of slightly less than 80%. Restrictions would apply, and there is enough prefunding balance so that a burn can bring AFTAP up to 80%. Is there a required burn triggered by the actual valuation results here? I'm thinking the answer is yes, but I haven't seen this happen in this way many times before. Insights appreciated.

I agree with CuseFan. One thing to watch out for is if the plan has any unpaid contributions due from the 2016 plan year or earlier, contributions must be applied to satisfy those first (starting with the oldest). Otherwise, you don't have to go in order.

That makes sense in cases where the plan is big enough to get a break on fees, but most of these are "micro" plans and for the most part have their assets in ordinary brokerage accounts. To the best of my knowledge, the DB plan assets aren't getting a better deal on fees than IRAs would get from the same firms.

Thanks, Bird. That was my thinking as well, but I've only been working on small plans for a few years and wondered if there was something that made this useful sometime in the past.

We have several small DB plans here that have had balances from terminated DC plans rolled into them (prior to my time here). The plans do have provisions to accept rollovers. There does not appear to be any specific language regarding the eventual distribution of the rollover money, aside from an election to exclude it from amounts considered for purposes of small automatic cash-outs. The rollover money has always been treated as an account balance unrelated to the DB calculations, and RMDs from the rollover have been based on the account balance method (correct according to a 2009 thread here). I have two questions: 1) Absent any plan language about in-service withdrawals, may the participants access their rollover money without terminating, retiring, or receiving RMDs? 2) Is there any advantage to this over simply rolling the DC balance directly into an IRA? I understand this might be desirable if someone wants to use their DC money to increase their annuity from a DB plan (assuming the DB plan provides for this), but I don’t see the advantage to attaching it to the DB plan if it’s just going to remain an account balance.

Assuming a qualified DB plan, both the required pre-retirement death benefit and the retirement benefit must have the spouse as beneficiary unless a) the spouse signs the appropriate waiver and b) the plan allows another beneficiary for the benefit in question. If there is no spouse or the spouse agrees to the waiver, another beneficiary can be named if the plan permits it. *If there is someone entitled to a benefit due to a QDRO, that could override the above.

I don't think you have to accumulate non-vested benefits for RMDs in that way. They are deemed to accrue when they become vested, so I believe there is simply a single year of RMD due once the three years have elapsed. Tom Poje referenced 1.401(a)(9)-6 Q-6 in this thread: https://benefitslink.com/boards/index.php?/topic/50458-required-minimum-distribution-0-vested/

One thing to keep in mind is that the applicable maximum lump sum may increase as time passes, depending on the details of the situation. I agree though, if you have an actuary look at the specifics of the plan, they should be able to tell you if this is likely to be the case for you client and give you a better idea of the available options.

Thanks, Mike. No, I did not expect that the final payment could or would be made before the end of 2017. I told the client we couldn't know the exact amount of his 2017 RMD using the account balance method until his employee had made an election since we don't know exactly how much it would cost the plan to purchase an annuity for her if she chooses one. The client was slow to hand out the paperwork, so her required minimum of 30 days to make her decision goes beyond the end of the year. My concern was that using the account balance method for the lump sum payment might be treated as due at the end of the calendar year as typical DC/IRA account balance RMDs are. Absent that issue, there should be no problem. I figured if that turned out to be a real problem, he would be reasonably safe just taking 12xAB as his RMD if he took it within the 1 year interval after his first distribution.

I'm getting the 4/1 twice (actually every year while the plan in ongoing) from 1.401(a)(9)-6 again. Section (c) of answer number 1 begins with this: "(1) Annuity payments must commence on or before the employee's required beginning date (within the meaning of A-2 of § 1.401(a)(9)-2). The first payment, which must be made on or before the employee's required beginning date, must be the payment which is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year." This appears to mean that if your interval is annual, each payment is due on the 4/1 following the end of the relevant year if you took your first payment on the required beginning date. I have seen people argue this issue both ways. This seems most persuasive to me from what I've seen so far. There is a page on the IRS website which says the 2nd payment must occur by 12/31, but that doesn't seem to address periodic payments from DB plans, so my guess it was either written early and was never updated or the author was simply not thinking about DB. There certainly could be some additional guidance that I haven't seen. This is the part that I was mostly asking about. I think what you said here regarding the amount of the 2017 payment is the safest thing to advise the client unless I find something that talks about this situation more specifically. Thanks for your help!

Since the plan is terminating, my understanding is that the actual lump sum he will receive should be treated as the account balance. This is from 1.401(a)(9)-6 (section (d) of the the answer to question 1): "(1) The portion of the single sum distribution that is a required minimum distribution is determined by treating the single sum distribution as a distribution from an individual account plan and treating the amount of the single sum distribution as the employee's account balance as of the end of the relevant valuation calendar year." I take the piece of 1.401(a)(9)-6 I quoted to be saying that the single sum distribution is treated as if it were the end of the prior year balance if we were calculating a standard RMD for an individual account plan*. It isn't really calculated as of that date though, it's the actual lump sum on the payment date (less the amount foregone by the owner to the extent necessary). Also, the payment made earlier in the year was the RMD for 2016, so I don't think it would apply to the calculation of the RMD for 2017. *typo correction - "single account plan" should have been "individual account plan."

Hi folks, I've been reading these boards for a while, but this is my first post. Client has a DB plan (professional 100% owner and one other employee, not subject to PBGC). The owner reached age 70.5 in 2016 and received his first RMD in 2017 slightly before the required beginning date of April 1. The payment was a year's worth of accrued benefit (normal DB RMD paid annually). Per 1.401(a)(9)-6, A-1(c)(1), if the plan was ongoing, his next annual distribution should be made around that same date in 2018. However, he terminated the plan in 2017 and is an electing a lump sum at plan termination. Since it is the year of termination, I believe he can take his 2017 RMD via the account balance method using his lump sum as the balance. His employee only recently received her distribution materials and may not have made her payment election before the end of 2017, so we don't know the cost to the plan for her benefit yet (could be her calculated lump sum or an annuity contract purchase at an as-yet unknown price). Barring a large gain in plan assets at the last minute, the plan will not have enough assets to pay the owner's full lump sum, so he will forego some of it to the extent necessary. He does not want to make an additional contribution to allow the plan to pay his full amount. Therefore, we likely will not be able to calculate his RMD before the end of 2017 since the "account balance" is not yet known. Question: Does the fact that we are using the account balance method for the 2017 RMD shift the payment due date to the end of 2017, or would it still be considered timely if he takes it by March of 2018 (one year after the first annual RMD was paid)? We're aware that the RMD should be excluded from any rollover to an IRA.