Patty

Mercer projects 2026 retirement plan limits (updated) Mercer has changed its mind.

@RatherBeGolfing, I have been trying to figure that out all day.

He is probably talking about the boldface below: IRC 457: ... (d)Distribution requirements (1) In general. For purposes of subsection (b)(5), a plan meets the distribution requirements of this subsection if— (A)under the plan amounts will not be made available to participants or beneficiaries earlier than— (i) the calendar year in which the participant attains age 70½ (in the case of a plan maintained by an employer described in subsection (e)(1)(A), age 59½), (ii) when the participant has a severance from employment with the employer, (iii) when the participant is faced with an unforeseeable emergency (determined in the manner prescribed by the Secretary in regulations), or (iv) except as may be otherwise provided by regulations, in the case of a plan maintained by an employer described in subsection (e)(1)(A), with respect to amounts invested in a lifetime income investment (as defined in section 401(a)(38)(B)(ii)), the date that is 90 days prior to the date that such lifetime income investment may no longer be held as an investment option under the plan, ... The above 457(d)(1)(a)(iv) was added by the 2019 SECURE Act, Section 109(d), part of "portability of lifetime income."

We also use a generic letter that does not disclose the reason for the inquiry, and simply requests that they contact us. If they do so, we use multiple identifiers to confirm. We also use PBI.

A May 23, 2023, letter by two senators and two representatives said they were going to correct this: "Section 107 of SECURE 2.0 increases the age at which required minimum distributions from a retirement plan are required to begin. Specifically, it changes the age on which the required beginning date for required minimum distributions is based (the “applicable age”). Congress intended to increase the applicable age from age 72 to age 73, for individuals who turn 72 after December 31, 2022 and who turn 73 before January 1, 2033, and to increase the applicable age from age 73 to age 75 for individuals who turn 73 after December 31, 2032. However, with respect to the increase from age 73 to age 75, the provision could be read to apply such increase to individuals who turn 74 (rather than 73) after December 31, 2032, which is inconsistent with Congressional intent." A draft tech corrections bill was prepared. Those are both pretty clear that 59'ers are age 73'ers, I am personally sad to say. But it appears that IRS is not going to change it until a tech corrections bill is actually passed. Technical Corrections Bill 12-6-2023.pdf 5-23-2023 Letter from Congress to IRS on SECURE 2.0 errors.pdf

Peter, this is exactly what we are struggling with. The terminal illness provision is not a basis for a distribution on its own. So if the participant is a terminated vested who is 47 years old, wants to cash their benefit out, and meets the terminal illness definition, if we want to help that participant preserve their ability to repay and to get the exemption from the 10% penalty, it seems to me that we, as the payer of a distribution, should offer to take a doctor's certification that the participant meets the Act's definition, and report the distribution on box 7 of IRS Form 1099R as Code 2 - early distribution, exception applies. Now, how he repays it is another question. Do we have to let him repay it to our plan? As you note, if he wants to repay it to his IRA, what is an IRA provider going to require as proof that it was distributed under this Section? Something from us? His 1099R? We were going to do essentially what you did - add a provision that includes the terminal illness definition and repayment. Thanks, Peter. You're one of the great contributors to this site, BTW.

Hi all. Section 326 of SECURE 2.0 regarding terminal illness was effective December 29, 2022, and exempts benefit recipients from the 10% early distribution penalty if they have a terminal illness as defined in Act. They also can repay the distribution under the same terms that apply to the qualified birth or adoption distributions. The Plan Administrator is required to get a doctor's certification providing that the participant meets the statutory definition. IRS has not released any guidance on this. Are your plans administering this? Have your plans been amended for this? Do you intend to amend your plans for this? Any thoughts/experience on this would be welcome. Thanks!

No plan I have ever represented has had a provision on disclaiming benefits. In the few instances this has arisen, we have permitted the beneficiary to disclaim the benefit, as long as the requirements were met.

DOL has been doing audits on this already, and they have added extensive questions on it to their pre-audit information request letters. I have not seen such a letter - but there is a lot of chatter about it, and checklists circulating.

https://www.pbinfo.com/ My clients have been using PBI for over 30 years. They have saved us millions - literally - net of fees.

Thanks @justanotheradmin for the link! A very closely watched case.

The distribution seems to me to be a lump sum distribution requiring 1099R reporting and 20% withholding (if it's an ERD). The insurance company should account for the investment amount having been taxed by basis reporting.

Thank you, Kevin C - super-helpful!!

The governmental 457(b) plan finds out that a participant lied on their application for a distribution for unforeseeable emergency. The truth would have resulted in the application being denied. Does the plan have to do anything more than file the 1099-R with an "early distribution - no known exception" code? Do we have to/can we even recoup it from the participant? Should we file an attachment to the 1099-R about the circumstances? Any thoughts appreciated. I'm a newbie here, so please be kind.