As discussed in our February 12, 2009 WorkCite article, defined contribution plans and IRAs were given an opportunity to eliminate required minimum distributions (RMDs) for 2009 under the Worker, Retiree and Employer Recovery Act of 2008 (WRERA).
On September 24, 2009, the IRS issued Notice 2009-82 to provide guidance on the waiver of 2009 RMDs. The Notice also included:
- Two sample amendments to implement the waiver,
- Transition relief for certain actions taken on or before November 30, 2009, and
- Rollover relief for waived RMDs.
Generally, plan sponsors need not take any action with respect to the RMD waiver rules. Rather, a sponsor is required to take action only if it has permitted participants to waive the normal RMD rules in 2009 or if the sponsor wishes to implement all or a part of the waiver program before the end of the year.
Sample Amendments
If a sponsor chooses to waive the 2009 RMD, it must adopt a plan amendment by the end of the first plan year beginning on or after January 1, 2011 (2012 for governmental plans). There is no need to amend IRAs at this time.
The Notice provides two sample amendments that plan sponsors may use to amend their plans to reflect the waiver of 2009 RMDs. The sample amendments give participants and beneficiaries the choice between receiving and not receiving distributions related to the 2009 RMDs, but only if one of the following applies:
- The amount of the distributions would otherwise be equal to the amount that would be required under the 2009 RMDs.
The distribution is one or more in a series of substantially equal distributions (that include the 2009 RMDs) made at least annually and expected to last for the life (or life expectancy) of the participant, the joint lives (or joint life expectancy) of the participant and the participant’s designated beneficiary, or for a period of at least 10 years. The latter amounts are referred to as “Extended 2009 RMDs.”
The first sample amendment provides that participants will receive distributions for 2009 unless the participant or beneficiary chooses not to receive them. The second sample amendment provides that participants will not receive distributions unless the participant or beneficiary chooses to receive them.
Either sample plan amendment may be chosen by a plan sponsor regardless of current plan language. However, plan sponsors may need to modify the sample amendment chosen to conform to their plan’s terms and administrative procedures. The timely adoption of an amendment must be evidenced by a written document that is signed and dated by the employer (including an adopting employer of a pre-approved plan).
Transition Relief Provided
Due to the late enactment of the WRERA in 2008, many plan administrators were unable to modify their plan procedures relating to 2009 RMDs to accommodate the new rules in a timely fashion. As a result, the Notice provides that a plan will not be treated as failing to operate in accordance with its terms because, during the period from January 1, 2009 through November 30, 2009, a plan (1) paid or did not pay 2009 RMDs or Extended 2009 RMDs; (2) failed to give participants and beneficiaries the option to take 2009 RMDs or Extended 2009 RMDs; or (3) offered or failed to offer a direct rollover option for 2009 RMDs or other amounts that could be rolled over under the Notice.
Rollover Relief Provided
The WRERA made rollover of RMDs possible (previously RMDs were not permitted to be rolled over). Usually, an RMD distribution must be rolled over within 60 days of the distribution in order to avoid including the distributed amount in gross income. The Notice grants relief to participants who have already received a 2009 RMD by providing for an extension of the 60-day rollover period to the later of November 30, 2009 or 60 days after the date the distribution was received. This extension of time applies to both plans and IRAs.
Additional Issues
In addition to the main issues addressed above, the Notice also provides guidance in the form of questions and answers, including the following:
- Generally, the portion of a distribution that is a 2009 RMD is subject to 10% withholding.
- Spousal consent may be required to suspend distributions in 2009 and restart them in 2010 if a new annuity start date is chosen upon recommencement.
- The time for non-spouse beneficiaries to make direct rollovers is extended to the end of 2010.
Action Steps
As mentioned above, plan sponsors generally are not required to make the RMD waiver program available to participants. However, if a plan sponsor has previously permitted participants to waive the RMD rules in 2009, or if the sponsor wishes to implement all or a part of the waiver program before the end of the year, it should consider the following:
- Review all communications that have been given to participants regarding the RMD waiver and rollover rules to determine if any communications need to be adjusted to comply with the Notice.
- Review summary plan descriptions and tax notices previously given to participants to ensure that the guidance provided in the Notice does not conflict.
- Adopt plan amendments – they may be individually designed or based on the sample amendments in the Notice.
- Review and adjust plan administration procedures to ensure that the plan is administered in accordance with any changes adopted as a result of RMD waivers or other actions taken as a result of the Notice.
Further, all plan sponsors should consider the following:
- Provide a notice to all participants who have received 2009 RMDs or Extended 2009 RMDs that describes the IRA and plan rollover opportunities that now apply to those distributions (including the November 30th deadline that will apply to many of such participants); and
- Keep in mind that while RMD waivers currently only apply to the 2009 plan year, they might be extended to future years.
For assistance in implementing or drafting amendments related to the waiver of RMDs or any other issues related to Notice 2009-82, please contact any member of the McGuireWoods Employee Benefits or Labor & Employment teams, including: