Required Minimum Distribution (RMD) - new plan

[Dinosaur]

We have a client that established a new DB plan effective 1/1/2015. The plan will be adopted this month. The only employee is the owner and she turned 70 1/2 in 2014. Vesting is 100% since she has another qualified plan.

Her required beginning date is April 1, 2015 but she has no accrued benefit on that date.

When must she receive her first RMD as an annuity? I couldn't find anything in the RMD regs. I can't imagine it would start in 2015 since her benefit won't be calculated until the end of the plan year when we get her final salary (although since she is the owner we probably already can calculate her exact accrued benefit on 12/31/2015).

Would her benefit start 1/1/2016?

[Calavera]

Where does it say that vesting has to be 100% because she has another qualified plan?

[Dinosaur]

I thought I read somewhere that if you have another qualified plan you couldn't exclude years of service for vesting prior to the effective date of the plan. Or maybe it was something with a terminated or predecessor plan.

[Calavera]

This is what I thought too. 1.411(a)-5 talks about vesting service. However, unless I am missing something, I don't see that you have to make 100% vesting just because empoyer has another qualified plan.

Additionally under 1.401(a)(9)-6 A -1© - All benefit accruals as of the last day of the first distribution calendar year must be included in the calculation of the amount of annuity payments for payment intervals ending on or after the employee's required beginning date. In your case the first distribution year is 2014 but 12/31/2014 accrued benefit is $0.

I also suggest to set NRD as 65 + 3 years of participation and no early retirement benefits.

[AndyH]

My recollection is that past service credit would be required for vesting service if you had a predecessor DB plan.

[Calavera]

But a predecessor plan is the one that terminated.

[AndyH]

Doesn't matter. Service credited under the predecessor plan must be credited for vesting purposes in the successor plan, as I recall the rule. This is off hand from memory but I did spend a great deal of time on this issue a few years back.

[Mike Preston]

Andy, look up the definition of successor plan. It may surprise you.

[AndyH]

yes, thanks Mike, I should have remembered that a predecessor plan is one that terminated. Calavera is right.

[Dinosaur]

New DB plan effective 1/1/2015, only employee (owner) turned 70 1/2 in 2014. Assume 100% vested.

Required beginning date is 4/1/2015 not plan not adopted until after that date.

When must the participant receive their first RMD? I can't imagine it would start in 2015 since the benefit won't be calculated until after the end of the plan year when we get the final salary (I assume it could be estimated). Would the accrued benefit start 1/1/2016?

[Calavera]

if plan doesn't provide any prior service, I think the RMD starts at 1/1/2016.

[AndyH]

I would think that's true either way. Isn't the 4/1 minimum actually for 2014?