Operationally handling the DB/RMD

[Jerry Erisa]

Situation;

a). We understand that under the 401(a)(9) Regs, a formal RMD election has to be made as to the form of benefit. If no election is made, then the default distribution method is the QJSA.

b). We understand that the death benefits payable could be (de-facto) forfeited, if the participant chooses a life annuity and then dies unexpectantly. This is not appreciated by the expectant heirs who were looking for their inheritance.

c). We understand that RMD election is permanent, with "Re-annuitization" under 1.401(a)(9)-6, Q/A #13 only allowed if: the participant terminates employment, terminates the plan, or terminates his/her bachelorhood and gets married, with a QJSA.

d). We understand that a term certain payout of 20 years could be reduced, (if the client changes his/her mind) but not increased.

Questions:

1). Is there an easier, operational way to handle this administrative quagmire?

We are seeing all sorts of complications with some clients wanting an in-service distribution before the RMD starts, and of course, wanting to change it, as they earn additional credits.

2). On small family plans, it is tempting to merely pay it out as a LSD, roll to an IRA, and let the bank deal with the far simpler DC - Account Balance method of handling the RMD issues?

Thank you, in advance, for your client savvy/ERISA conversant solutions to real world issues.

[My 2 cents]

With respect to question 2, be sure that the rollover does not include anything that must be distributed as an RMD!