DB Required Minimum's

[austin3515]

PArticipant in a defined benefit pension plan retires in 2012 and is 73 years old. The Plan allows for lump-sum distributions and that is what has been elected.

Is a portion of the lump sum ineligible for rollover because of the RMD rules?

If so, does the actuary need to calculate the RMD based on his 12/31/2011 accrued benefit?

That's how it would work on the 401k side, but I don't do a lot with the DB plans... I was surprised that the actuary wasn't sure, so I thought I would ask you guys!

[John Feldt ERPA CPC QPA]

Since the participant has elected a lump sum payment, my recollection is that the "account balance method" can be applied for RMD purposes for the year in which the payment is made. The rest can be rolled over. For ongoing participants in a DB plan that are only getting the minimum distributed, the account balance method went away as an option several year ago.

[austin3515]

Since the participant has elected a lump sum payment, my recollection is that the "account balance method" can be applied for RMD purposes for the year in which the payment is made

So are you saying "yes, Austin, you are correct."

[Calavera]

Here is my understanding of 1.401(a)(9)-6. Q/A-1(d) for a person retiring at age 73 in 2012 with the Required Beginning Distribution Date of 4/1/2013.

Under the annuity method the RMD portion of the lump sum that is not eligible for rollover is 24 x Monthly Annuity calculated as of 1/1/2012.

Under the account method the RMD portion of the lump sum that is not eligible for rollover is the actual lump sum amount divided by 24.7 (2012 RMD) plus the actual lump sum amount divided by 23.8 (2013 RMD). Factors are taken from the Uniform Life Table in A-2 of 1.401(a)(9)-9 for age 73 and 74 respectively.

I would love to hear if my understanding is not correct.

[John Feldt ERPA CPC QPA]

Yes, the same rules apply which only allow the remaining portion to be eligible for rollover.

As for the calculation, it is based on the prior 12/31 vested accrued benefit plus any prior unpaid RMD amounts that could not be paid in prior years because they were not yet vested.

Just be aware that the RMD amount differs greatly when a full lump sum is paid vs. when only the minimum gets paid. If they're only taking the minimum out, not the entire lump sum, the RMD amount is generally much larger.