required minimum distributions

[Guest kurt johansen]

First, I would like to thank Noel for his outline on required minimum distributions (RMDs). I spent part of the weekend studying the outline and I think I have a handle on the calculation.

Unfortunately I'm dealing with a plan that did not make RMDs for 1996 and 1997 to two employees who attained age 701/2 in those years. Because of changes made by SBJPA, employees who are still working and aren't 5% owners are not required to take distributions. However, according to the IRS, a plan cannot take away the option to take a distribution at age 701/2 because it is a protected benefit. The Irs published Notice 97-70 which gave employers until December 31, 1997 to offer employees an election to defer. Our employer did not provide the election until December 28, 1998. (Both opted to defer).

I originally thought that this was a failure to make a RMD subject to excise tax and so on. However, upon furthere analysis, these employees were not required to take distributions under 401(a)(9) because they were still employed. The failure was that the plan did not follow its own terms and make distributions when the employees turned age 701/2. Do you agree with that analysis?

if so, would the proper correction be to make the required minimum distributions for the 1996 and 1997 years based on the terms of the plan? Would earnings need to be calculated and added into the minimum distributions?

Kurt