RMDs and CARES Act

[waid10]

I have a few questions.

1.  Is the CARES Act RMD waiver an optional or required provision for plan sponsors?  

2.  Does the plan sponsor need to amend their plan document to allow the waivers?

3.  We have an 80 year old employee that retired on 12/31/2019.  My understanding was that she was exempt from the RMD under the "still working" exception until she retired.  Now, she should have had her first RMD by 4/1/2020 (which still hasn't occurred).  If she had worked on 1/1/2020, her first RMD wouldn't have been required until 4/1/2021 (notwithstanding the CARES Act).  So I believe we are late in processing this RMD, correct?  Do we need to process this ASAP?  Does she have rollover options as part of the CARES Act?

Thanks for any thoughts.

[Mike Preston]

58 minutes ago, waid10 said:

I have a few questions.

1.  Is the CARES Act RMD waiver an optional or required provision for plan sponsors?  

2.  Does the plan sponsor need to amend their plan document to allow the waivers?

3.  We have an 80 year old employee that retired on 12/31/2019.  My understanding was that she was exempt from the RMD under the "still working" exception until she retired.  Now, she should have had her first RMD by 4/1/2020 (which still hasn't occurred).  If she had worked on 1/1/2020, her first RMD wouldn't have been required until 4/1/2021 (notwithstanding the CARES Act).  So I believe we are late in processing this RMD, correct?  Do we need to process this ASAP?  Does she have rollover options as part of the CARES Act?

Thanks for any thoughts.

1. Required, in some form that complies with 401a9

2. At some point. End of 2022 as of now.

3. See #1. 

Why do you think you are late?

[Kevin C]

1.  Based on the webcasts I've heard so far, DC plans are not required to waive the 2020 RMD requirements.  I don't know why anyone would want to force RMDs to be paid when they don't have to be, but it appears to be optional.

3. The CARES ACT waiver includes 2019 RMDs for those with a RBD of 4/1/20 that were not paid by 12/31/19.  If her 2019 RMD wasn't paid by 4/1/20, that would be a good reason for the plan to waive the 2020 RMDs.

[Bird]

My understanding is that there are no "RMD"s for 2020, period.  The problem arises with plans that don't just reference 401(a)(9) but parrot the language in it, which I believe pre-approved plans must do.  So they have language that would force a distribution that looks just like an RMD but isn't.  But those plans can be amended to remove or suspend that language and I think most or all will do that.

[Kevin C]

As Mike pointed out, the amendments reflecting how the plan operates in 2020 for this will be done some time in 2022.  All or our plans will be amended to waive the 2020 RMDs unless the participant requests it, just like we did for 2009. The amendment that is eventually done will need to match the plan's operation, or there will be an operational failure.  Which is why I think 3. in the OP is a good reason to have the amendment waive all 2020 RMDs.

The question was whether or not the plan is required to waive RMDs for 2020. Bird, I think you are agreeing that the plan can still force that amount to be paid.  The way the distribution is treated under the Code isn't affected by what the plan does.   Since 402(c)(4) now says amounts received in 2020 that would have been RMDs are eligible for rollover, a participant that doesn't want the 2020 RMD has a way to avoid taxation of it even if the plan forces it to be taken. 

I'll also note that our current VS document has an option to have the "required beginning date" for non-5% owners be determined by when they reach 70.5, even if they are still employed. 

[waid10]

Thank you for all of the replies.  If I understand correctly:

The Plan can allow for waivers now.  This includes our employee that retired on 12/31/2019 and would normally have been required to receive her distribution by 4/1/2020.  But even if the Plan allows for waivers, a participant could still insist on receiving his/her RMD in 2020 if they desire (i.e., need the cash, etc.).  The Plan would need to be amended to comply with operation, but that doesn't need to be completed until some time in 2022.

If the plan sponsor decided, for some reason, to not allow RMD waivers, this is permissible.  It would just mean that the employee that retired on 12/31/2019 has an overdue RMD that would need to be addressed.  For anyone else that receives an RMD in 2020, they have the option of rolling it over to avoid taxation.

Do I have this all correct?

[Bird]

1 hour ago, Kevin C said:

Bird, I think you are agreeing that the plan can still force that amount to be paid.

yes

1 hour ago, waid10 said:

a participant could still insist on receiving his/her RMD in 2020 if they desire

Not necessarily.  There is no such thing as an RMD in 2020.  We may get an option to let the participant decide (as we did in 2009) but there is nothing that says the participant can say "I want my RMD" (because there is no such thing).  If the plan has other in-service options, like allowing a partial distribution of any amount after Normal Retirement Age, then yes.

1 hour ago, waid10 said:

If the plan sponsor decided, for some reason, to not allow RMD waivers, this is permissible.  It would just mean that the employee that retired on 12/31/2019 has an overdue RMD that would need to be addressed

Well, again, the plan may have language that if not amended would force out money that looks like an RMD, and I suppose it would have April 1 in there, so yes, except that we are not talking about RMDs, we are talking about distributions that look like RMDs.  But why...?

[waid10]

7 minutes ago, Bird said:

Well, again, the plan may have language that if not amended would force out money that looks like an RMD, and I suppose it would have April 1 in there, so yes, except that we are not talking about RMDs, we are talking about distributions that look like RMDs.  But why...?

I guess I am just thinking about the situation where a former employee has been receiving his RMD every year.  Then this year, he is counting on it because he needs the cash.  And if we (the employer) don't provide it in 2020 due to the waiver...

[Mike Preston]

Then that plan will pay an amount in 2020 consistent with the plan sponsor's intention, which if it matches the participant's needs, nothing else has to be done right now.

[Kevin C]

2 hours ago, waid10 said:

But even if the Plan allows for waivers, a participant could still insist on receiving his/her RMD in 2020 if they desire (i.e., need the cash, etc.)

It depends on the language in the amendment, which will have to match the actual operation of the plan during 2020.  The plan could waive all RMDs.  The Act includes an exception to 411(d)(6) for the amendment, so removing the all RMDs for 2020 shouldn't be an issue. But, why would you want to do that?  Or, it could require payment of the amounts that would have been RMDs.  Again, why would you want to do that?  Or, it can give the participant the choice. Our document provider is planning to use the same options they did for 2009.  One will be that the RMD isn't paid unless the participant requests it.  The other is that the RMD is paid unless the participant specifically elects to not take it. We used the option of not paid unless requested for all our plans for 2009 and will use the same for 2020 when that amendment is done.

[Bill Presson]

1 hour ago, waid10 said:

I guess I am just thinking about the situation where a former employee has been receiving his RMD every year.  Then this year, he is counting on it because he needs the cash.  And if we (the employer) don't provide it in 2020 due to the waiver...

If it's a former employee, why isn't the former employee eligible for a distribution? Doesn't have to be called an RMD.

[AMDG]

Not many people know this, but the Staff of the Joint Committee on Taxation published a description of the CARES Act, available on their website: https://www.jct.gov/publications.html?func=startdown&id=5256  See pages 18-19 of the PDF regarding the impact of the 2020 RMD waiver for participants whose first RBD would be April 1, 2021.

(tl;dr: The participant's "first" RMD due by April 1, 2021 is waived.  Only the "second" RMD is required and must be distributed by December 31, 2021.)  

[Larry Starr]

22 hours ago, Kevin C said:

1.  Based on the webcasts I've heard so far, DC plans are not required to waive the 2020 RMD requirements.  I don't know why anyone would want to force RMDs to be paid when they don't have to be, but it appears to be optional.

3. The CARES ACT waiver includes 2019 RMDs for those with a RBD of 4/1/20 that were not paid by 12/31/19.  If her 2019 RMD wasn't paid by 4/1/20, that would be a good reason for the plan to waive the 2020 RMDs.

Disagree in concept with your answer 1 because there are NO RMDs in 2020.  If the plan language (which has been required for volume submitter and prototype) is explicit, then it mandates a distribution, but by law it WON'T be an RMD.  The plan can stop making distributions of this sort this year, but it will have to eventually adopt an amendment that justifies such action.

If she was supposed to take her first RMD on the delayed 4/1 date, then she doesn't have to take it assuming the plan is properly amended if needed.