WRERA - Participant Wants to take RMD

[Guest ResearchGirl]

Does WRERA prohibit a participant from taking his 2009 RMD? RMD's are the only exception to lump-sum distributions in a lot of the plan documents I handle and I can't imagine telling retired participants they have to take $25,000 or nothing instead of the $1,000 they want. And can a participant still elect not to have the 10% (not 20% mandatory) Federal Taxes withheld?

[J Simmons]

A strict reading and application of your document would lead to $25,000 lump sum or nothing.

I would not vary from that without an opinion of counsel that the extraordinary circumstances of a one-year suspension of the RMD rules permit you to make what would have been the RMD but for the one-year suspension.

Of course, the employee could take the $25,000, roll it to an IRA, and take it out as he pleases.

[Mike Preston]

It depends on plan provisions, I think. If a DB plan, I think you are stuck. If a DC plan, then the question is whether the participant is otherwise entitled to a distribution from the plan. If so, then this question is silimar to the one that asks whether a participant can take $1,000 more than their RMD. Some plans, yes. Some plans, no.

[Bird]

A strict reading and application of your document would lead to $25,000 lump sum or nothing.

Actually, a strict reading of your document in place right now would probably lead you to continue to provide the "RMD" since it's all spelled out in there, no? A lot of people are assuming it is optional (or will be clarified that way). I think I smell an interim amendment coming out of this ill-conceived mess.

Any distributions that would otherwise by an RMD are not subject to mandatory withholding as not an eligible rollover distribution, although they may in fact be rolled over.

[J Simmons]

Bird, please explain how a strict reading of a plan provision that only allows lump sums and RMDs would lead to providing a distribution in 2009 other than a lump sum when for 2009 there are no RMDs?

[WDIK]

Not to put words in Bird's mouth, but I think the point is that there is not yet language in plan documents that reflect the RMD suspension under WRERA.

Based on comments at the Los Angeles Benefits Conference, it appears that there is still uncertainty about how this suspension can and should be applied in many circumstances.

[Bird]

WDIK got my drift. The plan probably says something to the effect of "participants over the age of 70.5 must take distributions based on their life expectancy and keep taking them blah blah" not ""the plan will comply with 401(a)(9) however it happens to read at the moment."

[Kevin C]

I see it as a 411(d)(6) issue. The RMD under the old rules is an optional form of benefit. I don't see any mention in WRERA section 201 of a 411(d)(6) exemption for an amendment to implement the 2009 RMD waiver. However, I won't be surprised if we end up with an exemption.

I’m curious how everyone handled it when SBJPA changed the required beginning date for non 5% owners.

[Mike Preston]

As I recall, for those born before a specific date, if they had already commenced RMD's, you had to give them a choice. Otherwise, we amened the plans to remove the requirement for an RMD for non-5% owners. Ever.

[Guest ResearchGirl]

I just spoke to Anita Bower of the IRS Employee Plans Division (she wrote Notice 2009-09 about RMDs for 2009). She said RMDs are not prohibited for 2009. A participant has options in 2009 -- not take an RMD, take it and roll it over, or take it the way he always did.

[J Simmons]

Not prohibited, but not required by the IRS either. So a payout for 2009 would not be a required minimum distribution as defined in the IRS regs.

What does your plan language say? That RMD's will be paid to the extent required? Or, as Bird suggests, does the plan describe how much will be paid per year after the required beginning date? Therein will lie your answer.

[Kevin C]

WRERA section 201©(2) allows a retroactive amendment to be adopted by the last day of the plan year starting on or after 1/1/2011 as long as the plan is operated as if the amendment were in effect during the 2009 calendar year. That should take care of any current plan provisions that are not consistent with the approach ResearchGirl describes.

[jlea]

Based on the WRERA language and the guidance out so far, it seems the issue falls to each plan whether to offer everyone a choice regarding their otherwise RMD for 09 or to set a default rule, which is communicated to Ps and Bs, and act in accordance with the default except to the extent that someone requests otherwise. The amendment deadline is not until 2011. I'm anticipating, though, this decision will be made in the short term and the amendment will reflect the choice made. Would you agree?