RMDs for Multiple Employer Plans

I have a situation where I have a closed MEP that includes Company A and Company B.    Company A has different ownership than Company B.  The owner of Company B is over age 72 and has an account balance in the plan derived from being an employee at Company A (in which he has no ownership).   Is he required to take an RMD since he is an 5% owner in ONE of the companies that sponsors the plan?

I found this, but that is all I can find.   I told him he does have to take an RMD and he wants additional documentation and I understand his argument. 

Retirement plan and IRA Required Minimum Distributions FAQs | Internal Revenue Service (irs.gov)

Before considering what Internal Revenue Code sections 401(a)(9) and 416 might call for or tolerate, what provisions are stated by the plan’s governing documents?

The plan documents do not seem to address this topic in either the RMD section or the MEP section. 
 

If the plan’s administrator interprets the plan to require no more than what’s minimally needed to the § 401(a)(9) tax-qualification condition:

I.R.C. § 401(a)(9)(C)(ii)(I) refers to “an employee who is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains the applicable age[.]”

I.R.C. § 416(i)(1)(B)(i) defines a 5-percent owner by reference to “the employer”.

Likewise, 26 C.F.R. (Treas. Reg.) § 1.416-1/Q&A T-17 refers only to “the employer”.

I.R.C. § 416(i)(1)(C) provides: “The rules of subsections (b), (c), and (m) of section 414 shall not apply for purposes of determining ownership in the employer.”

Even within a single employer, many practitioners assume a person is a 5-percent owner if she owns (or is treated as owning) more than 5% of any one of the organizations that count together as a single employer.

Further, the text “the employer” (rather than “the employers”) does not logically apply to more than one employer. A multiple-employer plan has—after treating together organizations, trades, and businesses that count together as a single employer under § 414(b)-(c)-(m)-(n)-(o)—more than one employer.

IRS website FAQs are not guidance. “[I]f an FAQ turns out to be an inaccurate statement of the law as applied to a particular taxpayer’s case, the law will control the taxpayer’s tax liability. Only guidance that is published in the [Internal Revenue] Bulletin has precedential value.” IRS, General Overview of Taxpayer Reliance on Guidance Published in the Internal Revenue Bulletin and FAQs (updated Apr. 15, 2024), available at https://www.irs.gov/newsroom/general-overview-of-taxpayer-reliance-on-guidance-published-in-the-internal-revenue-bulletin-and-faqs. See also 26 C.F.R. (Treas. Reg.) § 1.6662-4(d), § 1.6664-4(b). Likewise, an IRS Publication is no authority. Adler v. Commissioner of Internal Revenue, 330 F.2d 91, 93, 64-1 U.S. Tax Cas. (CCH) ¶ 9388 (9th Cir. Apr. 2, 1964) (Responding to a taxpayer’s argument that he relied on a statement in the IRS’s Publication 17, the court observed: “Nor can any interpretation by taxpayers of the language used in government pamphlets act as an estoppel against the government, nor change the meaning of taxing statutes[.]”).

This is not advice to anyone.

In addition to Peter's helpful sources and reasoning, I'll point you to IRC 413(c), which lists several purposes for which the employers sponsoring a multiple-employer plan are considered to be a single employer, including:

• 410(a), regarding service required to participate in the plan
• 411, regarding service required to become vested in the plan
• 401(a), but only as it regards whether the plan is for the exclusive benefit of the employees of the employer and their beneficiaries

Congress could have added section 401(a)(9) to this list, but they did not. Which implies that the employers maintaining a multiple-employer plan are treated as separate employers for purposes of 401(a)(9).

This morning’s BenefitsLink news points to the prepublication release of the Treasury’s final rule and a further notice of proposed rulemaking [296 pages], interpreting I.R.C. § 401(a)(9).

https://benefitslink.com/news/index.cgi