2009 Minimum Distribution

[AndyH]

Was a DC rollover account in a DB plan subject to a Mininum Distribution for 2009? If not, was some type of amendment required?

[Guest Sieve]

Nothing I see in IRC Section 401(a)(9)(H) or Notice 2009-82 would exempt rollover accounts in a DB plan from MRD applicability in 2009.

[AndyH]

Thanks for the reply.

That is what I thought. But this was on the IRS website (my emphasis):

http://www.irs.gov/retirement/article/0,,id=96989,00.html#12

Does the 2009 RMD waiver also apply to defined benefit plans?

No, 2009 RMDs are waived only from defined contribution plans (including 401(k), profit-sharing, money purchase pension, SEP, SIMPLE IRA, SARSEP, 403(b), and certain 457(b) retirement plans) and Individual Retirement Arrangements (IRAs). They are still required from most defined benefit plans. However, in some rare instances, a defined benefit plan may provide a benefit based in part on the balance of a participant’s separate account. This type of an account, known as §414(k) account, is treated as a defined contribution plan and is covered by the 2009 RMD waiver. Participants should contact their employer and /or plan administrator to determine their type of plan.

[Guest Sieve]

414(k) applies to a DB plan "which provides a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant", and requires that the separate account be treated as a DC plan for certain purposes (410, taxation under IRC Section 72, vesting, 401(m) & 415). Here, the rollover--assuming it is applicable to all participants--is not an employee contribution subject to 410(b) or 401(m) testing, nor is it an employer contribution, so I don't think the IRS FAQ refers to DC plan rollovers into a DB plan.

The Joint Committee Report is no real help, either: ". . . no minimum distribution is required for calendar year 2009 from . . . employer-provided qualified retirement plans that are defined contribution plans (within the meaning of section 414(i)".

[Mike Preston]

Many on this side of the country interpreted it to mean that a rollover is exempt.

[AndyH]

Well, FWIW, we've concluded that Larry is right, it was not exempt, that the 414(k) situatioh is not directly analogous. Also, FWIW, TAG agrees.

[Belgarath]

In case this is of any interest in the current deliberation.

http://benefitslink.com/boards/index.php?s...mp;#entry185806

[Mike Preston]

I have searched for a citation that a rollover into a db plan is *not* a 414(k) arrangement. I couldn't find anything. Unfortunately, I couldn't find a direct citation the other way around, but I did find a number of articles implying that it is.

What do you think? Do you think a rollover into a db plan creates a 414(k) arrangement? I think it does, as long as the accounts grow with actual rate of return.

And that is how most rollovers into db plans work, don't they?

Assuming you agree it is a 414(k), the 401(a)(9) regs are pretty explicit that the arrangement is considered two plans for purposes of satisfying RMD's. One of those plans is treated as a defined contribution plan. I'll let you guess which one.

1.401(a)(9)-8, Q&A1

[Mike Preston]

See what happens when websites don't have timeouts on the cookies? [No, this is not a complaint, I like it fine just the way it is, thank you very much.]

I had started to reply before Belgarath referenced the other thread and it took me a "while" to finish the reply.

Larry, do you have a citation that goes the other way?

[Guest Sieve]

The LRM provision refers to IRC Section 414(k), which simply begs the question. Likewise, the reference in Treas. Reg. Section 1.401(a)(9)-8, Q&A-1--that 414(k) plans are treated as partly a DC plan and partly a DB plan for MRD purposes--also begs the question.

But, explain to me how a DC rollover into a DB plan creates in the DB plan "a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant" as required by the IRC? (Emphasis added.) Since I'm not a DB "regular", I have little experience to draw on, none of which has ever adressed this question.

This is only a secondary source, but a fall 2009 ALI-ABA conference outline stated: "The IRS has informally indicated that this [2009 MRD] moratorium does not apply to defined benefit plans, including a hybrid defined benefit plan (i.e., Code Section 414(k) hybrid plans)." (Emphasis added.) But, of course, that appears to directly contradict the IRS FAQ quoted by Andy H. earlier.

Heads or tails?

[AndyH]

Mike, I initially viewed it exactly as you do; our legal people view a 414(k) as a hybrid plan other than a rollover.

WDIK?

I do know that the IRS could have used the word "rollover" in the FAQ but did not.

[SoCalActuary]

The LRM provision refers to IRC Section 414(k), which simply begs the question. Likewise, the reference in Treas. Reg. Section 1.401(a)(9)-8, Q&A-1--that 414(k) plans are treated as partly a DC plan and partly a DB plan for MRD purposes--also begs the question.

But, explain to me how a DC rollover into a DB plan creates in the DB plan "a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant" as required by the IRC? (Emphasis added.) Since I'm not a DB "regular", I have little experience to draw on, none of which has ever adressed this question.

This is only a secondary source, but a fall 2009 ALI-ABA conference outline stated: "The IRS has informally indicated that this [2009 MRD] moratorium does not apply to defined benefit plans, including a hybrid defined benefit plan (i.e., Code Section 414(k) hybrid plans)." (Emphasis added.) But, of course, that appears to directly contradict the IRS FAQ quoted by Andy H. earlier.

Heads or tails?

Larry - I believe the reference to hybrid plans is for the benefit of cash balance plan participants. It does not have any direct reference to accounts which are entirely DC in nature, reported as assets on a DB 5500 form. Who was the author of the ALI-ABA opinion piece? Has that rumor been sourced back to anyone in real authority?

[Guest Sieve]

SoCal --

Are you suggesting that all DB plans with a DC component earning at its actual rate of return, no matter the source of the DC assets (voluntary e'ee, mandatory e'ee, rollover), are 414(k) plans? That may be so, but I always thought that 414(k) (& ERISA Section 3(35)) was narrower than that.

The outline was by Terry Mumford of Ice Miller LLP (Indianapolis). I have no idea of the statement's genesis or follow-up.

[SoCalActuary]

SoCal --

Are you suggesting that all DB plans with a DC component earning at its actual rate of return, no matter the source of the DC assets (voluntary e'ee, mandatory e'ee, rollover), are 414(k) plans? That may be so, but I always thought that 414(k) (& ERISA Section 3(35)) was narrower than that.

The outline was by Terry Mumford of Ice Miller LLP (Indianapolis). I have no idea of the statement's genesis or follow-up.

Yes, I believe that all the DB plans you describe are permitted to have a separate DC account if the plan document allows it. They are permitted to do so by 414(k), which simply provides the broad authority for their existence.

As to other 414(k) rules, some apply to specific fact patterns that need specific regulation.

Is Terry Mumford willing to discuss this rumor in more detail?

[Guest Sieve]

No idea. But, I'll contact her & report back on what she says . . .