CARES Act - Optional?

[Ian]

It seems to be generally accepted that the CARES Act provision for coronavirus-related distributions from company plans is optional -- not mandatory. What about distributions from IRAs?  After all, the section 2202(c) amendment requirement applies to "annuity contracts and plans."

Also, what about the RMD waiver? The same amendment requirement in section 2202(c) is also in section 2203(c)/

[ratherbereading]

The RMD waiver is not optional.  

[Ian]

I thought that too, but the same amendment language supporting  the conclusion that the withdrawal/loan provisions are optional (2202(c) is also in the RMD section (2203(c)).

[Peter Gulia]

Internal Revenue Code of 1986 § 401(a) sets a list of conditions a plan must meet if one wants tax-qualified treatment.

 

Paragraph (9) sets the minimum-distribution condition.

 

IRC § 401(a)(9)(I) [added by CARES § 2203(a)] varies the § 401(a)(9) condition.

 

But the § 401(a)(9) condition doesn’t preclude a plan provision that pays out more than the minimum.

[Ian]

OK, so a plan that fails to adopt the RMD waiver wouldn't violate 401(a)(9) because it's paying more than the minimum. Doesn't that make the waiver optional?

[duckthing]

I think what Peter is getting at (and I apologize if I'm misstating it) is that participants aren't precluded from taking distributions that are otherwise permitted by the plan document. Participants are just not required to take distributions under 401(a)(9) for 2020, and any distributions they do take in 2020 are not RMDs since they're not actually required by statute.

[Ian]

But I guess what I'm asking is whether a plan could decide that it's going to continue to pay RMDs in 2020 (i.e., not adopt the waiver).

[Peter Gulia]

Further, IRC § 401(a)(9) does not preclude a plan’s provision that compels a distribution.

 

There might be another provision—for example, one designed or implied to meet ERISA §§ 202-204, or other Federal law—that constrains an involuntary distribution.

 

But a plan might provide an involuntary distribution after the participant has reached the later of age 62 or normal retirement age and other facts permit the distribution without unlawful age discrimination.  That might include an involuntary distribution even if it is not a 401(a)(9)-required distribution.

 

Admittedly, those circumstances are not the mainstream.  Yet it can matter for some plans.

[RatherBeGolfing]

1 hour ago, Ian said:

But I guess what I'm asking is whether a plan could decide that it's going to continue to pay RMDs in 2020 (i.e., not adopt the waiver).

To your specific question:

No, a plan cannot continue to pay RMDs for 2020, because there are no RMDs for 2020.  The CARES Act amends section 401(a)(9) so that it does not apply for 2020.  That means that distributions from plans that would have been an RMD but for the CARES Act are rollover eligible.

As pointed out by others, there may be other language that forces a participant to take a distribution, but it would not be RMD language per 401(a)(9)

[Ian]

Makes perfect sense. But then what's 2203(c)(2) about?  Isn't this virtually the same language as in 2202(c) that we are relying on to say that the relief for plan coronavirus-distribution and loans is optional? In other words, if plans can't pay RMDs in 2020 because of a revision to 401(a)(9),  then why the need to amend the plan document?

[Mike Preston]

Because all plan provision changes require an amendment at some point.

[Ian]

This is from a letter from ERIC (the retirement plan lobbying group) to the DOL and Treasury Dept. asking for CARES Act guidance and clarification:

"The CARES Act suspended the requirement to issue required minimum distributions (RMD) for 2020. The CARES Act makes this suspension optional with the plan sponsor."

ERIC goes on to cite IRS Notice 2009-82 in which the IRS said 2009 RMDs were optional.  In fact, the IRS even said that plans could have participants choose whether to take 2009 RMDs.