RMD's

[austin3515]

What are TPA's doing regarding RMD's for 403b plans (perhaps TIAA in particular). Because a participant can take the RMD from any of the 403b accounts held by a participant, it is basically impossible to say with certainty whether or not the RMD rules have been complied with.

TIAA apparently just sends out a letter on the date they turn 70.5, but that is it.

[QDROphile]

The employer is responsible and the subject should be covered by the information sharing agreements so the employer is able to manage its responsibility. The employer can can hire a manager, and the manager can be one of the annuity providers, but I have never seen that work out in practice.

[austin3515]

You are responding as though the participant aggregating accounts of the same employer. My understanding is that the participant can aggregate the accounts of multiple past/present employers and take the total RMD's from any one of those accounts.

[QDROphile]

I think that best practice is for the employer to oversee the required distributions with respect to its plan. I think the employer properly discharges its responsibility if it receives a representation from the particpant that the participant is receiving a distribution from another contract and specifies a distribution amount that is greater than the required distribution amount that is calculated with respect to the plan account balances. One can argue what the 403(b) regs require by way of determination that the "contract" meet the 401(a)(9) requirements.

[austin3515]

Best practice is a lot different than a requirement. I have a client with 30 people over the age of 70.5 - to obtain that level of assurance is something I would need to bill for, or they would need allocate resources towards, both of which are not easy to come by.

Is there a reg site you can present that conveys an obligation of the sponsor to take action with respect to RMD's? I'm not saying I don't think there is one, I'm just looking to understand what I need to be doing.

[QDROphile]

Offhand, only regs 1.403(b)-3(a) and -6(e) and the focus is on the contract meeting requirements. Does that refer to formal requirements rather than operational? Employers are specifically mentioned only in -6(3)(3), but are responsible for the plan's compliance with 403(b), whatever that may mean. It seems that at a minimum the employer has to assure that the contract/plan has some appropriate words in it for 401(a)(9), but we have no specific guidance concerning appropriate words. The newly revamped IRS website for 403(b) does not highlight 401(a)(9) complaince. I don't know what the LRMs for 403(b) plans say on the subject.

[austin3515]

(7) Application to multiple contracts for an employee . The required minimum distribution must be separately determined for each section 403(b) contract of an employee. However, because, as provided in paragraph (e)(2) of this section, the distribution rules in section 401(a)(9) apply to section 403(b) contracts in accordance with the provisions in § 1.408-8, the required minimum distribution from one section 403(b) contract of an employee is permitted to be distributed from another section 403(b) contract in order to satisfy section 401(a)(9). Thus, as provided in § 1.408-8, A-9, with respect to IRAs, the required minimum distribution amount from each contract is then totaled and the total minimum distribution taken from any one or more of the individual section 403(b) contracts. However, consistent with the rules in § 1.408-8, A-9, only amounts in section 403(b) contracts that an individual holds as an employee may be aggregated. Amounts in section 403(b) contracts that an individual holds as a beneficiary of the same decedent may be aggregated, but such amounts may not be aggregated with amounts held in section 403(b) contracts that the individual holds as the employee or as the beneficiary of another decedent. Distributions from section 403(b) contracts do not satisfy the minimum distribution requirements for IRAs, nor do distributions from IRAs satisfy the minimum distribution requirements for section 403(b) contracts.

To me, the reference to 408 makes it clear that this is an individual requirement? It sounds like you disagree but it isn't that at least a reasonable interpretation?

[QDROphile]

It might be instructive to see what EPCRS says about 403(b) plans and 401(a)(9) violations, if anything.

I think that, at a minimum, the employer is responsible for certain formal requirements. That means that the plan document or the contracts that serve the plan must have 401(a)(9) language of some sort in them. If the language is not included, the arrangment fails to be covered by 403(b). It is logically plausible that it is the particpant's responsibility to comply in operation with the language and the employer has no responsibility for actual distributions because of the ability of the participant to aggregate contracts and choose the source of the distribution.

[masteff]

1.403(b)-6(e)(2) directs us to 1.408-8. Which lead us to 1.408-8 Q&A-10

Q-10. Is any reporting required by the trustee, custodian, or issuer of an IRA with respect to the minimum amount that is required to be distributed from that IRA?

A-10. Yes, the trustee, custodian, or issuer of an IRA is required to report information with respect to the minimum amount required to be distributed from the IRA for each calendar year to individuals or entities, at the time, and in the manner, prescribed by the Commissioner in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin (see § 601.601(d)(2)(ii)(b) of this chapter) as well as the applicable Federal tax forms and accompanying instructions.

which leads us to the Form 5498 instructions with leads us to IRS Notice 2002-27

"However, no reporting is required at this time with respect to required minimum distributions from section 403(b) contracts."

So unless you can find anything that supercedes 2002-27 (I honestly didn't look beyond the notices listed in the 5498 instructions), then you have no reporting obligation.

[austin3515]

So in other words, you don't think the plan administrator of a 403b plan has to do anything at all with respect to RMD's other than process them upon the request of the participant?

This rule is suggesting that an IRA custodoian must actually calculate the amount of the RMD required and report that to the participant, but even this is not required of a 403b plan. Is that what you are suggesting?

[jpod]

In connection with the 403(b) regulatory overhaul, over which there were many warnings and expressions of the intention to make 403(b)s more "plan-like," The IRS and Treasury COULD HAVE eliminated the rule enabling you to satisfy MRDs from any one or more 403(b) accounts or annuities, and replaced that with a flat out rule that the MRDs are determined separately plan-by-plan. However, they didn't do that. Moreover, they made no effort to address this conundrum in the new regulations. Therefore, I don't see how IRS could disqualify a 403(b) plan if the decision making in that regard is left up to the participants. Well, I guess IRS can do whatever it wants, but I don't see how they it could successfully defend such an action in court.

[austin3515]

Cool, so we are on the same page. Thanks everyone!

[masteff]

And of course, like always, check your plan document since it could create an obligation not otherwise in the code and regs.

[joel]

I believe this thread proves the point that the individual ownership rights the employee-investor has with section 403(b) arrangements is what is terribly wrong with the 403(b)---it is a simple nightmare! The Congress needs to wake-up and give these arrangements the funeral it deserves.