CARES RMD waiver - optional?

Section 2203 of the CARES Act seems clear to me that 401(a)(9) does not apply to RMDs paid in 2020 or for 2020 - they are "waived", which I would interpret as meaning that they are not to be taken (I'm not a lawyer, though, and I don't claim to understand Congress).  But I'm seeing some recordkeepers including it in the list of optional provisions that plan sponsors can choose to elect.  Are they being overgenerous, or am I mis-reading?

My concern is that we've got most plans written such that terminated participants can't take partial distributions (though I suppose coronavirus-related distributions would get around that), so if there is no legitimate RMD for 2020 per regulations, then can the plan really elect to let a 2020 RMD happen?  This also applies for those few plans without an in-service withdrawal provision where the 5% owners would be affected, but we can amend to fix that if we had to.

Thanks, and stay safe.

1 hour ago, AlbanyConsultant said:

Section 2203 of the CARES Act seems clear to me that 401(a)(9) does not apply to RMDs paid in 2020 or for 2020 - they are "waived", which I would interpret as meaning that they are not to be taken (I'm not a lawyer, though, and I don't claim to understand Congress).  But I'm seeing some recordkeepers including it in the list of optional provisions that plan sponsors can choose to elect.  Are they being overgenerous, or am I mis-reading?

My concern is that we've got most plans written such that terminated participants can't take partial distributions (though I suppose coronavirus-related distributions would get around that), so if there is no legitimate RMD for 2020 per regulations, then can the plan really elect to let a 2020 RMD happen?  This also applies for those few plans without an in-service withdrawal provision where the 5% owners would be affected, but we can amend to fix that if we had to.

Thanks, and stay safe.

i think RMD's are waived but participants can take an optional distribution  of any size from their IRA or a DC plan.   otherwise people would be forced to take a COVID distribution.  

Thanks @k man.  Not sure what you mean by "optional distribution"...

6 hours ago, AlbanyConsultant said:

Section 2203 of the CARES Act seems clear to me that 401(a)(9) does not apply to RMDs paid in 2020 or for 2020 - they are "waived", which I would interpret as meaning that they are not to be taken (I'm not a lawyer, though, and I don't claim to understand Congress).  But I'm seeing some recordkeepers including it in the list of optional provisions that plan sponsors can choose to elect.  Are they being overgenerous, or am I mis-reading?

My concern is that we've got most plans written such that terminated participants can't take partial distributions (though I suppose coronavirus-related distributions would get around that), so if there is no legitimate RMD for 2020 per regulations, then can the plan really elect to let a 2020 RMD happen?  This also applies for those few plans without an in-service withdrawal provision where the 5% owners would be affected, but we can amend to fix that if we had to.

Thanks, and stay safe.

It's really pretty simple: there are NO RMDs in 2020.  Any distribution is something else. It's not optional. If the employer wants to provide for the now allowable distribution, they can, but it's not an RMD in any case.

Makes sense to me.  Thanks.

5 minutes ago, Larry Starr said:

It's really pretty simple: there are NO RMDs in 2020.  Any distribution is something else. It's not optional. If the employer wants to provide for the now allowable distribution, they can, but it's not an RMD in any case.

Except for DB plans.

14 minutes ago, Mike Preston said:

Except for DB plans.

Your honor, we are all willing to stipulate to that rule.

1 hour ago, Larry Starr said:

It's really pretty simple: there are NO RMDs in 2020.  Any distribution is something else. It's not optional. If the employer wants to provide for the now allowable distribution, they can, but it's not an RMD in any case.

Would the mandatory 20% withholding now apply for withdraws from Qualified Plans?  RMDs were are not eligible to be rolled over so the mandatory withholding rules did not apply.  Since there is no RMD, does the mandatory withholding rules apply for all distributions for 2020, no matter the age of the PPT (outside of distributions not eligible for rollover)?

Yes.

21 hours ago, JOH said:

Would the mandatory 20% withholding now apply for withdraws from Qualified Plans?  RMDs were are not eligible to be rolled over so the mandatory withholding rules did not apply.  Since there is no RMD, does the mandatory withholding rules apply for all distributions for 2020, no matter the age of the PPT (outside of distributions not eligible for rollover)?

The mandatory 20% federal withholding from qualified plan distributions would continue apply, however, with regard to the RMD amount that is now waived for 2020, it is my understanding that distribution amount is NOT subject to the mandatory 20% withholding requirement, even though it is eligible for rollover.  

9 minutes ago, ESOPMomma said:

The mandatory 20% federal withholding from qualified plan distributions would continue apply, however, with regard to the RMD amount that is now waived for 2020, it is my understanding that distribution amount is NOT subject to the mandatory 20% withholding requirement, even though it is eligible for rollover.  

Do you have the guidance or notice on this?

3 minutes ago, JOH said:

Do you have the guidance or notice on this?

You have to really drill down in Sec.2203 of the CARES Act, but perhaps this summary will help?

https://www.morganlewis.com/pubs/cares-act-brings-compensation-benefits-and-payroll-tax-changes-cv19-lf?p=1

1 hour ago, ESOPMomma said:

You have to really drill down in Sec.2203 of the CARES Act, but perhaps this summary will help?

https://www.morganlewis.com/pubs/cares-act-brings-compensation-benefits-and-payroll-tax-changes-cv19-lf?p=1

Here's the apropos section:

2020 Required Minimum Distribution Waiver for Defined Contribution Plans and IRAs (§ 2203)

Similar to a required minimum distribution (RMD) waiver that was available in 2009 during the Great Recession, the Act allows tax-qualified defined contribution retirement plans, 403(b) plans, IRAs or eligible 457(b) plans to postpone by one year (1) all required minimum distributions that must otherwise be made in 2020 and (2) all required beginning dates that would otherwise occur in 2020.
In the case of a defined contribution plan, an amendment to add this provision must be adopted by the end of the first plan year beginning on or after January 1, 2022 (December 31, 2022 for calendar year plans), or, for governmental plans, after January 1, 2024 (December 31, 2024 for calendar year plans).

Considerations and Comments

Retirement plan sponsors that adopt this feature will provide participants and beneficiaries with an opportunity to leave amounts in their retirement accounts and avoid taking required minimum distributions in 2020 during a period of steep market declines. However, participants and beneficiaries who wish to receive a distribution will remain eligible to do so, and the distribution will be exempt from certain other requirements in the code. Specifically, the distribution is not subject to the mandatory 20% withholding; the plan does not need to provide a 402(f) special tax notice; and the recipient does not need to be provided the opportunity to make a direct rollover of the distribution.

Internal Revenue Code of 1986 § 402(c)(4) (flush language), as amended by CARES Act § 2203(b):

If all or any portion of a distribution during 2020 is treated as an eligible rollover distribution but would not be so treated if the minimum distribution requirements under section 401(a)(9) had applied during 2020, such distribution shall not be treated as an eligible rollover distribution for purposes of section 401(a)(31) or 3405(c) or subsection (f) of this section.

I would politely disagree (to some extent) with some of the other posters.  The waiver under CARES is structured exactly the same way as the 2009 waiver under WRERA.  In the case of the 2009 waivers, a plan sponsor could elect to require RMDs to continue without regard to the waiver.  The 401(a)(9) rules set an outside limit.  Plans can always require distributions earlier.

As a practical matter, I think this is probably an academic discussion and virtually all plan sponsors will want to allow a waiver.  However, in my opinion, if a sponsor wanted to continue to force out RMDs in 2020, it theoretically could.

23 hours ago, BTG said:

However, in my opinion, if a sponsor wanted to continue to force out RMDs in 2020, it theoretically could.

The plan can force a distribution, but the distribution would not be an RMD...

On 4/2/2020 at 4:41 PM, Larry Starr said:

It's really pretty simple: there are NO RMDs in 2020.  Any distribution is something else. It's not optional. If the employer wants to provide for the now allowable distribution, they can, but it's not an RMD in any case.

maybe it is semantics but it is optional.  people who want to take from their IRA can and people who don't are not forced to.  

There seems to be completely different interpretations about how to treat RMD's for 2020.

Disregarding distributions paid out prior to 3/27/20 for now:

Are RMD's waived period for 2020?

If so, a plan must have some other form of an inservice distribution feature to allow for a payment to be made if so desired?

If not, a plan would need to be amended to allow for the inservice distribution if so desired.

Otherwise, no amendment is required because there is no option to apply or not to apply the 2020 RMD waiver, like the distribution/loan provisions that allow a plan to pay up to $100,000.

Am I on the right track here?

Right now, chances are your plan document says that once a participant reaches age 70-1/2 and is either a 5% owner or retired, they must receive a distribution by April 1 of the next year, and also by December 31 of that year and each year following. A plan must always be operated in accordance with its written document, so you have to either a) make those distributions, or b) amend the plan document.

If you amend the plan document, then those distributions would not be made. Your amendment might include a provision allowing those distributions to be made if the participant so elects.

If you do not amend the plan document, then the distributions must still be made - not because of any requirement in the Code, but because the document says so. That distribution would be eligible for rollover because it is not an RMD.

CB - so, consider the owner who has been taking RMD's.  For clarification for 2020, under CARES:

1. They take a distribution:  Plan purposes:  They must take a distribution per the plan so they are following plan provisions.  No amendment needed. Tax purposes:  They are allowed to roll it over.

2. They do not take a distribution:  Plan purposes: They are violating the plan and the plan would have to be amended.  Tax purposes: no worries since no RMD required for 2020.

If I'm understanding correctly, the CARES act is making RMD's harder for 2020.

I agree with both 1 and 2.

Harder is a matter of perspective, I suppose.

3 hours ago, TPApril said:

If I'm understanding correctly, the CARES act is making RMD's harder for 2020.

How is it harder?  A simple snap on amendment by 2022 and you dont have an issue.

What to do for a terminating plan? Can I lift the language from the 2009 amendment and change the dates, and call it good faith?

On 4/7/2020 at 9:11 AM, k man said:

maybe it is semantics but it is optional.  people who want to take from their IRA can and people who don't are not forced to.  

No, it's NOT optional to treat the distribution as an RMD.  It's NOT semantics.  That is the fact.  Of course it is optional WITH THE EMPLOYEE to take money out of his IRA or not; but that was not the question posed.  If a distribution is forced by plan language, it will not be an RMD in 2020.

I think this counter-productive argument is more a matter of context.  Our VS document and every other document I've seen calls it an RMD.  The CARES Act added a provision that 401(a)(9) doesn't apply for 2020.  That eliminates the Code requirement for 2020 RMDs, but it doesn't automatically change the provisions in our plans. If a plan doesn't implement the law change, the plan document requires the distribution to be paid in 2020 and calls it an RMD, then, under the terms of the plan, it's an RMD in 2020.

1 hour ago, Kevin C said:

I think this counter-productive argument is more a matter of context.  Our VS document and every other document I've seen calls it an RMD.  The CARES Act added a provision that 401(a)(9) doesn't apply for 2020.  That eliminates the Code requirement for 2020 RMDs, but it doesn't automatically change the provisions in our plans. If a plan doesn't implement the law change, the plan document requires the distribution to be paid in 2020 and calls it an RMD, then, under the terms of the plan, it's an RMD in 2020.

 

 

The question is what is the status of the money that comes out.  I don't care if you call it an RMD or not - the law change makes it an "eligible rollover distribution" and that isn't option.  It may have no practical effect - provide prior guidance applies (which dispenses with 20% withholding and the 402(f) notice), but 1) we don't know what the IRS will do this time; and 2) we are specialists in a highly technical area - and being "specific" is essential to continuing to be specialists.

9 hours ago, Kevin C said:

I think this counter-productive argument is more a matter of context.  Our VS document and every other document I've seen calls it an RMD.  The CARES Act added a provision that 401(a)(9) doesn't apply for 2020.  That eliminates the Code requirement for 2020 RMDs, but it doesn't automatically change the provisions in our plans. If a plan doesn't implement the law change, the plan document requires the distribution to be paid in 2020 and calls it an RMD, then, under the terms of the plan, it's an RMD in 2020.

 

 

The law says it's NOT an RMD.  You can call an elephant a horse, but it's still an elephant (this year).

What if the plan references 401(a)(9) AND also spells out when RMDs can be paid.  What happens if there is no plan amendment?  Webinars on the subject have said if the plan says pay in accordance with 401(a)(9), then the 2020 RMDs are suspended but if the plan spells out the RMD payment details instead, the RMDs continue to be paid if there is no amendment.