TEFRA 242 Elections/RMD's

[Guest bubs]

Participant completed TEFRA 242 Election - is over 701/2 and a 5%

owner. Started distributions in 2000 - plan allows participant age

65 or older to withdraw fully vested account balance and this person is 100% vested. Plan was a Target Benefit plan - TB plan

frozen & 401(k) added although this participant only has TB balance. TPA not aware of distributions until after the fact. Appears participant never completed any paper work when he 1st requested payments of a monthly amount. Now questions have begun? Did the withdrawal of a periodic amount effectively

rescind the 242 election? Should these payments have been considered RMD amounts? One interpretation has been that since plan allows for withdrawals (subject to QJSA) these payments should be considered "by request" of participant. 242

election is not revoked as participant is still actively employed by sponsoring employer and can delay RMD's until actual retirement. I am just curious about what others may opine regarding this

scenerio. Thanks in advance.

[JanetM]

This is a tricky area - we bought a company that had DB plan and 401(k) & profit sharing plan. One of the owners had done a TEFRA election back in 1983 for both DB and DC plans. Election was to start distributions one year after he ceased working for compnay (at the time of purchase he worked and was 75).

We bought the company and promptly spent lots of money on atty's and actuaries to interpret this election. Final decision was that any change to the election would cause it to be voided.

Note that that is any change at all - prior to or during the performance of the election would cause that election to be void. Once void the penalties and wrath of the IRS would descend seeking the RMD's that should have been taken and the 50% exise tax on those RMD's not taken.

It is interesting to note that in our case the TEFRA election had the effect of there being no RMD's until the age of 76.5 - one year after the acquisition.