Can the RMD model amendment be adopted after GUST remedial period?

[Guest LMalone]

I'm sure the answer is out there and I've just missed it. We have a client who is currently receiving RMD's. He wants his 2001 and possibly 2002 distributions under the '87 regs. Can he adopt the model amendment in 2003 for distributions in 2003, provided the new regs have not yet been finalized?

IRS Announcement 2001-18, in correcting its first model amendment, states "With respect to distributions under the Plan made for calendar years beginning or or after January 1, 2001 (ALTERNATIVELY, SPECIFY A LATER CALENDAR YEAR FOR WHICH THE AMENDMENT IS TO BE INITIALLY EFFECTIVE)...." [capitalization is from the IRS]

This is not the alternative amendment from Ann. 2001-82, but a correction of the first model.

So back to my question, if, in 2003, the client wants to switch, may he do so by adopting the first amendment, as corrected above, in 2003 and specifying the calendar year 2003 as the initial effective date? This is obviously after the GUST RAP.

Thanks for any insight.

[rcline46]

New RMD rules are required in 2002, optionally to be applied in 2001. Why does client want old rules? In most cases the new rules provide lower (or identical) distributions.

[Guest LMalone]

This individual was accustomed to and depended upon the amount he has been receiving.

So, if the new rules are mandatory in 2002, if the model is not adopted within the GUST RAP and the plan is silent with respect to the new rules, we follow the new rules 2002 and beyond in operation but with no mention of them in the plan?

Ann. 2001-82 states that the original model amendment (the corrected version) is available for plans that follow the 2001 Prop. Regs. for determining required minimum distributions for 2001 for the entire calendar year 2001 or, IF FIRST EFFECTIVE AFTER 2001, for later calendar years prior to the effective date of the final regulations. [Caps are mine]

The capped phrase led to my state of confusion, where I still reside.

[rcline46]

First, in 2002 must follow the regs. But the problem of wanting more? Depending on the plan, can he just take more than minimum? If an IRA absolutely! If a Qualified Plan, then distribute all, put into an IRA and take what he wants.

This is an easy fix.

[Guest LMalone]

rcline46, humor me...

The preambles to the proposed new regs state that the regs are proposed to be effective for distributions for calendar years beginning on or after 1/1/02. Before the effective date of the final regulations (could this not be years down the road?), sponsors may rely on 1987 proposed regs. Alternatively, for 2001 and subsequent calendar years beginning "before the effective date of the final regulations, plan sponsors are permitted, but not required, to follow these proposed regulations in the operation of their plans by adopting the model amendment."

This seems to say that until the model is adopted, the sponsor may continue with the 1987 regs until the new regs are final.

So could the plan sponsor rely on the 1987 regs for a year or two, then in 2003 adopt the model amendment, provided the new regs have not become final?

I just haven't been able to find anything that the new regs are mandatory in 2002.

Thanks.

[rcline46]

The new proposed regs totally replace the 1987 regs as of 1/1/2002 - see Q&A 2 in 1.401(a)(9)-1. You cannot rely on the 87 proposed because they are gone.

[Guest pension222]

Under the heading of "Amendment of Qualified Plans" the preamble, as published in the Federal Register on page 3933, does say: "For distributions for calendar years beginning before the effective date of final regulations, plan sponsors can continue to rely on the 1987 proposed regulations..."

Under "Proposed Effective Date" on page 3934, it says: "These regulations are proposed to be applicable for determining required minimum distributions for calendar years beginning on or after January 1, 2002. "

Section 1.401(a)(9)-1 A-2 does say that sections 1.401(a)(9)-1 through 8 apply to required minimum distributions for calendar years beginning on or after January 1, 2002.

However, taken with the wording in the preamble, it appears that 1.401(a)(9)-1 A-2 anticipates this proposed regulation as being finalized effective January 1, 2002. Until the new proposed regulation is final it will not replace the prior proposed regulation. This is just another proposed regulation pertaining to IRC 401(a)(9).

Now I would not put it past the IRS to adopt these proposed regulations in 2019 with an effective date of January 1, 2002 so proceed with caution.

[Alf]

Pension222 is right on, I believe.

Has anyone heard whether the IRS is going to finalize these regs soon so that they WILL be effective 1.1.02 for all plans?

Is there some 90 day rule that has passed, so that they won't be effective 1.1.02 even if they are finalized this year?

[stephen]

This topic was discussed at the ASPA conference today. The new MRD rules are not required to be followed until the regs are finalized. Before EGTRRA was passed they seemed certain to be be finalized this year however, it could be later.

Another option would be to adopt the new rules and continue the distributions as they have been under the old rules. The difference would be that you would do the withholding for the difference between the two.

For example: Old rules 10,000 distribution. New rules 6,000 distribution. Withhold on the difference of 4,000.