RMDs in 403b Contracts

[J Simmons]

In negotiating terms of an agreement allocating responsibility for performing administrative chores (Treas Reg § 1.403(b)-3(b)(3)(ii)) between an employer that sponsors a 403b plan funded with individual contracts and one of the 403b contract vendors, an issue has arisen over the administration of RMDs (required minimum distributions). The vendor does not want to agree that it will make the RMDs, but simply that it will notify the contract holder of the RMD requirement and amount for the year (as computed by the vendor).

IRC § 403(b)(10), IRC § 401(a)(9) and Treas Reg § 1.403(b)-3(a)(6) requires each employee’s 403b contract to satisfy requirement minimum distribution requirements found in Internal Revenue Code § 401(a)(9) per rules otherwise applicable to IRAs set forth in Treas Reg § 1.408-8.

If one 403b contract that is part of the funding for the employer's 403b plan does not provide by its terms that RMDs will be made, does that poison the whole 403b plan or just the 403b contract in question?

Similarly, if in the 403b contract's language that RMD's will be made but a vendor does not, does that operational failure taint the entire 403b plan or just the 403b contract in question?

[Peter Gulia]

John, I can help you negotiate this in a way that the insurer or custodian should accept, and that avoids a task for the employer. (I've done the negotiation from both sides.)

My legal analysis about how to approach the problem is one that I don't feel comfortable posting on a public website. Please feel free to call me.

[Guest mjb]

In negotiating terms of an agreement allocating responsibility for performing administrative chores (Treas Reg § 1.403(b)-3(b)(3)(ii)) between an employer that sponsors a 403b plan funded with individual contracts and one of the 403b contract vendors, an issue has arisen over the administration of RMDs (required minimum distributions). The vendor does not want to agree that it will make the RMDs, but simply that it will notify the contract holder of the RMD requirement and amount for the year (as computed by the vendor).

IRC § 403(b)(10), IRC § 401(a)(9) and Treas Reg § 1.403(b)-3(a)(6) requires each employee’s 403b contract to satisfy requirement minimum distribution requirements found in Internal Revenue Code § 401(a)(9) per rules otherwise applicable to IRAs set forth in Treas Reg § 1.408-8.

If one 403b contract that is part of the funding for the employer's 403b plan does not provide by its terms that RMDs will be made, does that poison the whole 403b plan or just the 403b contract in question?

Similarly, if in the 403b contract's language that RMD's will be made but a vendor does not, does that operational failure taint the entire 403b plan or just the 403b contract in question?

I thought the final 403b regs adopt the the MRD rules for IRAs under Reg. 1.408-8 Q/A-9 which allow the MRDs for a 403b plan to be taken from any 403b contract of the employee. I know this provision was in proposed regs 1.403(b)-6(e)(2). I thought the final MRD regs for IRAs allow the provider to satisfy its MRD obligation by notifying the owner of what the MRD amount is. If the final regs allow the MRD from a 403b contract to be taken by any 403b contract why does it matter if a vendor will not agree to commence MRD from its 403b contract? Also if the contracts that the vendor has are individual annuities how can the vendor force MRDs to commence? Finally there are exceptions to the MRD requirements for account balances accrued as of 12/31/86.

[Guest albertng]

A RMD question for Cash Balance Pension Plan

If a terminated participant (over age 70.5) does not return a distribution election form, do we calculate (and pay by required beginning date) an annuity payment based on J&S or SLA in order to satisfy the RMD under a Cash Balance Pension Plan?

If we choose the J&S as the default distirbution method to satisfy RMD, could we assume the participant’s DOB as the spouse’s DOB is reasonable if spousal DOB or marital status is unconfirmed. Not sure if there is anything specifically required under the law.

Thanks,

Albert