The IRS has issued transition rules to address some of the uncertainty caused by the waiver of required minimum distributions (RMDs) for 2009. Those rules require action by November 30, 2009, so your immediate attention to this issue is required. The transition rules were issued in Notice 2009-82.
A year ago, Congress suspended RMDs for 2009 from defined contribution plans, IRAs, 403(b) plans and governmental 457(b) plans. However, IRS failed to issue guidance to tell plan sponsors how to address the various issues involved in suspending 2009 RMDs until September 2009. As a result, many plan sponsors continued “business as usual” and made 2009 RMDs as normally scheduled.
What Choices Do Plan Sponsors Have?
Plan sponsors must decide by November 30, 2009, how the plan will treat 2009 RMDs. Plan sponsors have three choices:
Pay 2009 RMDs as normally scheduled. Under the Notice you are not required to change how you administer 2009 RMDs. However, if you make 2009 RMDs as normally scheduled you may want to consider providing a notice to plan participants who received a 2009 RMD to inform them that they may be able to roll over the 2009 RMD tax-free if they make the rollover no later than November 30, 2009, or if later, 60 days after the distribution
Suspend all 2009 RMDs, unless a participant affirmatively requests a distribution.
Distribute all 2009 RMDs, unless a participant affirmatively elects not to take a 2009 RMD.
Plan sponsors must also decide by November 30, 2009, whether the plan will allow direct rollovers of 2009 RMDs. Again, plan sponsors have three choices:
Do not allow direct rollovers of 2009 RMDs.
Allow direct rollovers of 2009 RMDs.
Allow direct rollovers of 2009 RMDs only if the 2009 RMD is part of a larger distribution that is an eligible rollover distribution.
Note that the difference between these three options is primarily what notices and withholding treatment apply.
If you choose both of the first options (i.e., to continue making 2009 RMDs and to not allow direct rollovers of 2009 RMDs) and have RMDs left to pay in 2009, we recommend you consider making those RMDs before November 30, 2009, to fit within the grace period under the Notice. Beginning December 1, 2009, your plan operation must comply with the decisions you make. Your decisions may require an amendment to your plan. If your plan must be amended, the amendment must be adopted by the end of the plan year beginning on or after January 1, 2011.
If you have any questions about the required minimum distribution waiver rules, please contact any of the attorneys in the Warner Norcross & Judd LLP Employee Benefits Practice Group.