Dsitribution to Non-Spouse Benef under "new" 401(a)(9) rules

[Guest blkdoro]

Participant in 401k plan dies in Sept. 2001. Non-spouse beneficiary finally decides in 2004 to take Lump Sum distribution. Just before distribution is to be made,

beneficiary decides to change to installment payments per provision in 401(a)(9)

amendment signed in 2003. Beneficiary is 52 years old in calendar year following year of death (2002) - single life expectancy is 32.3 years. Now in 2004 - participant will be 54 by 12/31/04 and life expectancy is 30.5 years. In determining the life expectancy to use, is it 32.3 even though nothing will be distributed until 2004 or is it 30.5 because its the life expectancy in the year

distributions start that should be used. The RMD amendment indicates beneficiaries can elect the 5 year rule or the life expectancy rule and the election must be made no later than the earlier of Sept. 30 of the calendar year in which distributions would be required to begin (Age 70 1/2) which for this participant would have been in 2005 or by Sept. 30 of the calendar year which contains the 5th anniversary of the participant's death (w/b 9-30-2006). So it seems okay that beneficiary can make installment election in 2004 - I'm just not sure which life

expectancy number to begin with. Thanks to all for an opinion.

[Guest Pensions in Paradise]

Before you calculate the installment payment, you might want to confirm that that option is still available to the beneficiary. The timing rule you are describing applies to spousal beneficiaries. In order for a non-spouse beneficiary to use the life expectancy rule, payments must commence by December 31 of the calendar year following the year in which the participant died.

[Guest blkdoro]

Pensions in Paradise - I read your post & then rechecked the 401(a)(9) amendment. I am basing my opinion on the following language - "Participants or

beneficiaries may elect on an individual basis whether the 5 year rule or the life

expectancy rule (and then there is reference to specific paragraphs of the amendment) applies to distributions after the death of the participant who has a designated beneficiary." I believe I have interpreted the document language correctly. Assuming that to be so - do you have an opinion about which

age of the beneficiary would apply? Thanks.

[Guest Pensions in Paradise]

Sorry, I guess I wasn't clear enough in my original post. You stated that the participant died in September 2001. Therefore, in order for the beneficiary to be able to elect the life expectancy rule, the first payment would have had to have been made by December 31, 2002. Since no payment was made by that date, the beneficiary no longer has the option of electing the life expectancy rule.

[Guest blkdoro]

P in P - As you might imagine this is turning into a nightmare. I think what you're saying is amendment or no - the beneficiary had to choose by Dec. 31st of 2002.

Was the life expectancy method even available then? I didn't think so - just the

5 year plan, right? So because no choice was made by 12-31-2002, the only

method available is a lump sum? and that has to be paid by 12-31-2006 if not

before. Am I right about that? Thanks for your help.

[Appleby]

Yes. The life expectancy option was available then (assuming it was allowed by the plan, as plans are not mandated to follow the provision of 401(a)(9)).

I agree with Pensions in Paradise. Since the participant died before the required beginning date, the options available to the non-spouse beneficiary are:

1. Begin life expectancy distribution by 12/31 o the year following the year the participant died or

2. The five-year rule (assets must be fully distributed by 12/31 of the 5th year following the year of death).

The life-expectancy option is the default option. However, should the beneficiary fail to begin life-expectancy distributions by 12/31 of the year following the year the participant died, then the beneficiary must use the five year option. The assets are not required to be distributed in a lump-sum, providing the total balance is distributed by the end of the 5th year.

Lump sum is always an option.

For your particular example, the beneficiaries are subject to the five-year rule.