401(a)(9) Minimum From Terminating DB and Subsequent RMD

[Guest pension222]

The sole-participant in a DB plan will require his first required minimum distribution on account of attaining age 70 1/2 just before the plan is terminated and he rolls-over his lump sum distribution.

I know there has been some debate about if the applicable 401(a)(9) regulations allow a distribution by treating the PVAB as an account in an account plan and distributing accordingly.

But if he starts to receive a monthly benefit and then rolls over his lump sum, his future required distribution will be calculated under the individual account method.

I would like to treat the PVAB for the first distribution calendar year as an individual account and proceed accordingly with his subsequent required payments calculated based on his lump sum distribution.

Any thoughts or help on this would be greatly appreciated.

[Blinky the 3-eyed Fish]

I know there has been some debate about if the applicable 401(a)(9) regulations allow a distribution by treating the PVAB as an account in an account plan and distributing accordingly.

There is no longer any debate that this is applicable since they delayed the new 401(a)(9) rules for DB plans. See Rev. Proc. 2003-10 and Notice 2003-2. They clearly spell out you can use the old methods, of which the account balance method is one.

I don't understand the rest of your post. It almost sounds as if you want to make monthly minimum distribution payments while determining the amount using the account balance method, but since that doesn't make sense, I must be misinterpreting what you are saying.

[Guest pension222]

I had seen a posting about a year ago that contended that the account balance method was never an applicable method for DB plans, even under the old regs. I don't remember the details but honestly the guy made a pretty convincing case.

It was a long day yesterday and so my question was, well, a bit garbled.

My question really is what to do in this case.

Can the participant take monthly payments until the time his lump-sum benefit is paid from the plan and then will he take his RMD based on the account balance method calculated from the amount rolled-over?

For example if the April 15 following his attainment of age 70 1/2 is April 15, 2005 and then he rolls over his lump sum benefit on October 1, 2005 what do we do? Does he take monthly payments from April 15, 2005 until October 1, 2005 and then something else? Isn't he actually required to take a distribution on behalf of the year that he attained age 70 1/2 which means that he would need to take 12 payments on behalf of 2004 plus payments through September 2005 and then something else?

I hope this is clearer. I've never had to deal with something like this before.

Thanks.

[Blinky the 3-eyed Fish]

"The guy" is off on a limb.

When you say you have never had to deal with something like this before are you talking DB minimum distributions in general? Why are you focused on the monthly payments? Is it because the participant is already in pay status or are you trying to satisfy the minimum distribution through the annuity method?

If you have the ERISA Outline Book, a walk through that would help you. One thing you will notice is that April 1st is the deadline, not April 15th.

[Guest pension222]

Yeah, April 1. Thanks.

I found the posting by "The guy" who was out on a limb. I really did not make this up. It was posted by MGB on November 14, 2002 in response to a question about how to calculate the RMD under the new regulations for DB plans that allow single sum distributions. Someone posted a reply that said that the new regulations removed the provisions that allowed use of the account balance method to calculate the RMD from a DB plan for an ongoing participant. The posting from MGB read: "The IRS's position is that you never could use the DC method in this situation. The new proposed/temporary regulation did not change that. The DC method was in the 1987 proposed regulations for determining if distributions that were not in an annuity form met the required minimum. They felt that there really weren't any situations where this was needed and dropped that language from the new version. I assume that the structure of the plan is to allow an annuity payment or lump sum. Unless there is some other strange payout option described in the plan (and the participant elected that option), the DC approach was not available, even under the 1987 proposed regulations."

Actually, 1.401(a)(9)-1 F-3A.(e) of the temporary regulations seems to support this position since it addresses the case where distributions from a DB plan are not in the form of an annuity and is used to determine if these distribution meet the RMD requirements.

What I would like to do is to make one distribution to the participant on behalf of the first distribution calendar year based on the individual account method of proposed regulation 1.401(a)(9)-1 F-1 and then have subsequent RMD’s made based on the amount of the participant’s lump sum distribution that is rolled over to an IRA.

My question really revolved around the application of the account balance method to RMD’s from a defined benefit plan. I was curious is anyone remembered the posting (which I finally found in a file in my office) and if anyone would give it any credence.

What I have never been involved in is the case where the RMD from a defined benefit plan is satisfied through the annuity method and then the participant terminates and rolls over a lump sum benefit. However, upon closer reading of the new temporary regulations it appears that 1.401(a)(9)-6T A-1(d), Lump sum distributions, although delayed, sheds some light on this.

[Blinky the 3-eyed Fish]

So you are struggling with whether or not the account balance method is available or does your last sentence mean you are clear they are? You say you haven't used the annuity method where someone takes a lump sum eventually, but you have used the account balance method, right?

What I would like to do is to make one distribution to the participant on behalf of the first distribution calendar year based on the individual account method of proposed regulation 1.401(a)(9)-1 F-1 and then have subsequent RMD’s made based on the amount of the participant’s lump sum distribution that is rolled over to an IRA.

I am not sure what you mean by the last sentence. If your guy rolls his benefit over in October 2005, then you have the 2004 and 2005 minimum distribution that needs to be satisfied from the plan. 2006's minimum distribution will be paid from the IRA, but it won't be based on the rollover value.

We are 3 posts deep and I am not a whole lot clearer on what your questions are, so the above is my guess.

[Guest pension222]

I have used the account balance method. I wanted to check to see if anyone would support the prior posting from MGB. I take it that you feel that MGB is completely off base?

I guess my question then was, what do you do if the RMD is being met through the annuity method, and then the participant takes a lump sum distribution and rolls it over part way through the year. Since an entire year of annuity payments had not been paid, I was curious how this impacted the RMD for this year. However, the new temporary regulations seem to cover this.

Thanks for all of the input. I really appreciate it.

[Blinky the 3-eyed Fish]

To answer your first question, no, I don't think that at all. What I do know is that for DB plans the account balance method is available. Not to speak for MGB, but I don't think he is saying it's not.

[Guest pension222]

Take a look at the posting from MGB on May 26, 2004 on the topic titled "Required Minimum Distributions for DB plan."

[Blinky the 3-eyed Fish]

For the benefit of others it's here http://benefitslink.com/boards/index.php?s...t=0entry95095.

I stand corrected on his opinion, but it doesn't change mine.