RMDs - nonowner and still employed

[doombuggy]

I know that a more than 5% owner and any terminated participants are required to take a distribution once they turn 70.5. We were discussing the options open to those who are 70.5 and still employed (non-owners). I say the option is open to those people to take it if they want to - assuming that the plan allows for in-service withdrawals of course. My coworker disagreed. What are your thoughts?

[My 2 cents]

1. The plan can certainly permit anyone still employed after Normal Retirement Age (assuming the plan is using a defensible NRA) to elect to commence benefits at will. PPA allows the plan to permit commencement while employed at any time after attainment of age 62, but it is much more common for plans to only permit in-service benefit commencements on or after NRA (at least in my experience, although many do not allow commencement at all until separation from service).

2. If the participant is still employed and not a 5% owner, the required beginning date will not occur until after separation from service, and the plan should not be providing otherwise.

[ESOP Guy]

I think you and your co-worker are mixing up terms and that is causing the difference needlessly.

If the plan allows for in-service distributions then they can take an in-service distribution. It isn't an RMD. Even if the person were to say compute what my RMD would be if I had to take one and pay me that it is simply an in-service distribution and not an RMD.

In short if the plan allows for an in-service distribution they can ask for a payment but it isn't an RMD by definition.

[ESOP Guy]

2. If the participant is still employed and not a 5% owner, the required beginning date will not occur until after separation from service, and the plan should not be providing otherwise.

Something in the back of my mind (and I am willing to be told I am wrong) says that the law allows you to write a document that says non-5% owners are required to take an RMD before they terminate it is just no one actually writes a document like that.

[GMK]

I have the same something in the back of my mind, but I don't have a cite either way.

[My 2 cents]

If people over age 70 1/2 are required by the plan to be treated differently from people not over age 70 1/2, where the difference is not mandated by law, might that be a violation of the age discrimination laws? In other words, I don't have a cite either, but the back of my mind says if you are not required to push those people out, don't do it.