Required Minimum Distribution

[Guest Marino13]

Given that the plan document states: "Plan benefits will commence on the first of the month coincident with or next following the fifth anniversary (and at least age 62) of the date of hire."

What would be the date of the first age 70 1/2 required minimum distribution for the following individual?

Date of Birth = 7/12/1924

Date of Hire = 11/1/1994

Age 70 1/2 = 1/12/1995

5th anniversary of hire = 11/1/1999

[david rigby]

What is the vesting date?

Did benefits commence 11/1/99?

[Guest Marino13]

Any participant that retires on or after age 62 is fully vested.

The first benefit payment was made on 4/1/2001.

[Mike Preston]

Is the person a 5% owner? What does the plan say as far as Required Minimum Distributions relative to the start date? Does it say that everybody begins when they attain age 70 and 1/2, or does it say that non-5% owners begin when they retire?

[Mike Preston]

Marino13, your response to the vesting question was incomplete. Yes, if someone reaches the age under the plan where retirement benefits may commence they are 100% vested. What about the vesting schedule in the plan for those who have not reached the age where retirement benefits commence? 3 year cliff? 5 year cliff? 20% per year?

[Guest Marino13]

No, the person is not a 5% owner.

"A participant may request in writing to defer payment to a later date. In all events, payments shall commence no later than the April 1 of the calendar year following the later of the calendar year in which the Participant attains age 70 1/2 or the calendar year in which the Participant retires."

"Effective for Participants who attain age 70 1/2 after December 31, 1996 and before January 1, 2002, a Participant may irrevocably elect distribution of the Actuarial Equivalent of retirement benefits as of the April 1 following the calendar year in which the Participant attains age 70 1/2, whether or not the Participant terminates employment in that year."

5 year cliff vesting (if termination prior to age 62)

[Mike Preston]

OK, did the participant retire? If so, when?

[Guest Marino13]

Retired 5/1/2002

[Guest Marino13]

Can anyone give me an answer to my original question?

[Mike Preston]

It appears that this individual is not a 5% owner and began a lifetime annuity distribution before actual date of termination of employment. Do I have that right? So, the distribution clearly conforms to the minimum distribution requirements.

But that isn't exactly what you asked. You asked when the first minimum distributuion is/was due for this person. Are you asking because you want to know if this person must have started earlier? No, the document appears to allow them to wait until the 4/1 after retirement. In this case, that would be 4/1/2003. . Are you asking because you want to know if this person could have started later? Yes, because the document appears to allow them to wait until the 4/1/ after retirement.

Ignoring the minimum required distribution rules for a second and turning to the terms of the plan document, another question might be whether the Plan Administrator has interpreted the document to allow commencement of benefits before separation from service? It appears that the Plan Administrator has done so. The provisions you posted don't directly address the issue for this participant, though. If the document generally precludes pre-termination commencement of benefits, then it appears that this participant was not eligible to commence distributions on 4/1/2001. However, this document may have other paragraphs that bear on the issue, so you might want to have the entire document reviewed to see whether this is indeed the case.

[Guest Marino13]

The reason for my initial question is because the plan document states the following:

"If any benefit determined as of or after the April 1 following the calendar year in which the Participant attains age 70 1/2 is payable at a later date, it shall be increased at the rate of 8% per year, compounded annually, with respect to the period commencement is deferred. If a Participant attained age 70 1/2 prior to 1996, the actuarial increase begins on January 1, 1997."

In this particular scenario, this Participant turned 70 1/2 prior to becoming a Participant. I guess the question really boils down to...What date would you begin applying these 8% increases? Would you start the defered period on 11/1/1999 when he first became eligible to begin receiving benefits?

[Mike Preston]

How many more sections are you going to trot out? As I said, I think the whole document probably needs to be reviewed. Good luck.

[Guest Marino13]

I wasn't planning on getting this in-depth, but you asked a multitude of questions. I thought my original question was relatively straight forward, I guess I was wrong.