New RMD rules for non-ERISA TSAs--what needs to happen?

[Guest danmar]

I understand that the IRS will soon be publishing model amendment language for 401(a) plans and Employer-sponsored 403(B) plans so that participants in these plans can take advantage of the new simplified RMD rules annount 1/12/2001. (see the article on PPCNet.) The article states that "Qualified plan sponsors that want to follow the 2001 proposed regulations when making distributions for 2001 and later years should adopt the...model amendment."

My question is--what about a non-ERISA TSA plan where the plan provisions exist only in individual annuity contracts? How will these plan be updated to reflect these changes? Will the insurance company need to draft an addendum to the annuity contract?

Anyone have any thoughts on this? Our plan participants are already starting to ask. Thanks!

[Guest RJT]

In that 403(B) does not require that the annuity contract to contain 401(a)(9) language in order to qualify as a TDA, the failure to have RMD (or even, arguably, having the outdated RMD language) is likely to have no tax effct.However, it then becomes a matter of contractual obligation between the carrier and the policyholder: if the contract was annuitized, the RMD cannot not be changed; otherwise does the contract language REQUIRE an RMD be taken from that contract? (unlikely, as the RMD can be taken from any of the participant's 403(B) contracts). Does the contract have overriding language, such as "RMD will be distributed in accordance with 403(B)(10)"(which will often be the case, which means there is flexibility).

In sum, unlike 401(a), the RMD language of the annuity contract is not likely to have any tax effect. The question will be whether or not it binds the contractholder to take a specific distribution (that is, under the old rules or will it allow for the new). And that can be determined only by dealing with your vendor.