Minimum Required Distributions

[ERISA25]

I am trying to determine whether the right to receive MRDs in annual payments, as opposed to a plan provision that requires a lump sum distribution of the participant's entire account balance upon the first MRD date, is a 411(d)(6) protected benefit. In other words, if a plan used to allow participants to make the minimum payments each year, but now requires a lump sum distribution of the participant's entire account balance upon the first MRD due date, is there a cut-back?

[Kevin C]

There is an anti-cutback rule exception that will help. A defined contribution plan can eliminate an optional form of payment if it continues to provide for a lump sum distribution that is otherwise identical to the optional form of payment being eliminated. See 1.411(d)-4, Q&A 2 (e).

If the LS distribution is literally payable on the first MRD due date, but the annual installment is payable at any point during the year, it won't work. The LS timing has to be identical to the timing of the first installment under the optional form of payment being eliminated.

[ERISA25]

There is an anti-cutback rule exception that will help. A defined contribution plan can eliminate an optional form of payment if it continues to provide for a lump sum distribution that is otherwise identical to the optional form of payment being eliminated. See 1.411(d)-4, Q&A 2 (e).

If the LS distribution is literally payable on the first MRD due date, but the annual installment is payable at any point during the year, it won't work. The LS timing has to be identical to the timing of the first installment under the optional form of payment being eliminated.

Thank you, Kevin. That section indicates that you can do such for distributions with annuity starting dates after the date the amendment is adopted. I assume that means that if you already started paying MRDs in installment payments, then you must continue to offer the installment form of payment, but if the MRD installments have not already begun, you can amend to make the payment a lump sum assuming they are otherwise identical. Do you agree?

[Kevin C]

I assume that means that if you already started paying MRDs in installment payments, then you must continue to offer the installment form of payment, but if the MRD installments have not already begun, you can amend to make the payment a lump sum assuming they are otherwise identical. Do you agree?

I think that approach works, but I am not sure if it is the only option.

Notice 2009-82

Q-5. For a plan subject to §§ 401(a)(11) and 417, is spousal consent required to suspend distributions that include 2009 RMDs and restart such distributions in 2010?

A-5. A plan subject to §§ 401(a)(11) and 417 can follow the procedures described in Q&A-8 of Notice 97-75, 1997-2 C.B. 337, choosing to have either a new annuity starting date or no new annuity starting date upon recommencement. If no new annuity starting date is chosen under those procedures, spousal consent is not required under most circumstances. If the plan provides that there is a new annuity starting date, spousal consent may be required under those procedures to suspend distributions that include 2009 RMDs and to restart such distributions in 2010, depending on the form of distribution.