Required Minimum Distribution?

[Guest jgordon]

I have an owner who is 74 years old. He just established a cash balance plan effective 1/1/03.

The question is whether he has a required minimum distribution due by April 1, 2004. My actuary is saying that since there was no accrual on 12/31/02, there would be no RMD for the 2003 year (which would be due on 4/1/04). I can not find a cite that backs up this assertion.

Can anyone explain and provide some authority? Thanks so much

[WDIK]

there would be no RMD for the 2003 year (which would be due on 4/1/04).

Someone correct me if I'm wrong, but wouldn't the distribution be required by 12/31/2003, since the participant is already over age 70-1/2?

[FundeK]

I agree with WDIK. The distribution would be due on 12/31/03, however, I think that the distribution amount would be $0.00 in this case (if the 12/31/02 balance was $0.00)

[Guest jgordon]

Small problem with RMD by 12/31/03 . . . Contribution not due until 3/15/04. There would be nothing to distribute. AGHHHH! This is killing me!

[FundeK]

See my prior post. There is no distribution because there was no balance on 12/31/02.

[Blinky the 3-eyed Fish]

So the lesson here is to always trust an actuary.

BTW, if the plan was set up correctly, it would be with cliff-vesting and excluding years of service before the effective date for vesting. That way the vested accrued benefit would remain zero for a few more years and minimum distributions would be delayed.

[Lame Duck]

I was just catching up on this and I agree with you, Blinky, that a plan could use vesting from the effective date to postpone RMDs. We just received approval from the IRs for an amendment to our standardized prototype to permit the exclusion of vesting service prior to the effective date. However, it seems to me that this is only permitted when there is no predecessor plan, which seems to include any plan that was terminated within five years of the establishment of the new plan. (Reg. 1.411(a)-5(b)(3)(v)).

Also, I think the IRS might raise the issue that the business owner is effectively 100% vested at all times, since he or she controls the vesting schedule in the plan, thus requiring RMDs to be paid even though the owner is not vested under the terms of the plan.

Any comments?

[Blinky the 3-eyed Fish]

You are correct about the predecessor plan.

I don't think your next comment is an issue.

[Lame Duck]

Sorry, Blinky, I just reread my post and that "Any comments?" sounded pretty snide, which isn't wnat I intended, at all. I really wanted your thoughts on part two, which you gave.

[jane123]

I am not Blinky, but I am sure he/she will agree that you did not come across as snide. You came across as someone who could be confident/cocky if you wanted to since you are apparently knowledgeable, but instead you choose to be humble by asking for an opinion on your interpretation.

[Blinky the 3-eyed Fish]

He doesn't think it was snide at all.