MRD for active participant born in 1916

[Guest crosseyetester]

An active participant was born on 10/15/16 and is now asking to begin receiving his minimum required distributions. Is it correct that he was grandfathered out of receiving MRD’s and therefore his benefit would simply be calculated starting now? I have a feeling there is more to this that I’m not aware of. The benefit formula is FAE(5) within the past 120 months. There is no late retirement adjustment in the plan.

[DTH]

There was a transition rule when the required beginning date changed with TRA '86. TRA '86 required all participants who turned 70-1/2 to begin taking MRDs. Prior to TRA, an actively employed non-5% owner did not have to begin MRDs until the later of the year they turn 70-1/2 or retired.

The transition rule back then was ... Participants who attained age 70-1/2 before 1/1/1988 (i.e., date of birth before 7/1/1917) and is an actively employed non-5% owner, did not have to begin MRDs until 4/1 of the calendar year following the later of the year they turned 70-1/2 or retired.

Your participant falls into this category. The question to ask is, was he ever a 5% owner? If no, since he is still actively employed, he is not required by law to begin MRDs. You will need to look at the plan document to determine if he can get some other in-service distribution.

If he was a 5% owner, he should have begun payments in the year he became a 5% owner. (Once a 5% owner, always considered a 5% owner for MRD purposes.)

[saabraa]

Tell me if I'm off base; the only transitional rule I see is from TEFRA section 242(b) and requires the employee to have made a written election by the end of 1983 if he wanted to use the old MRD rules.

[Guest crosseyetester]

DTH - Thank you for your response.

The participant has never been a 5% owner. The plan does not offer in-service withdrawals. Therefore, if I understand your comments correctly, he actually cannot take an MRD since he is still active? Or can the new MRD rules be applied to him?

[JanetM]

It would be simple enough to amend the plan to allow for age withdrawals for employees who are still employed and attain a certain age.

[DTH]

Saabraa, the transition rule is in the 7/27/87 proposed regulations. Q&A B-2 A.(b). The pre-TEFRA 242(b) elections were also part of the transitional rules. Don't you just love them?

crosseyetester, you are correct. If the plan does not allow in-service withdrawals - no MRD or withdrawal. The new rules are the same as the old transtional rules. The SBJPA changed the required beginning date back to the pre-TRA rules, do no difference for him.

Assuming this is a DC plan, the plan could be amended to allow employer who continue to work past the plan's normal retirement date the ability to request an in-service withdrawal (these would not be MRDs).