October 21, 2009

Qualified retirement plans are generally required to make annual minimum distributions to plan participants who have reached age 70½. The  Worker,  Retiree,  and  Employer  Recovery  Act  of  2008  (WRERA) provides relief from this rule by waiving required minimum distributions (RMDs) for 2009.  Recently, the IRS issued new guidance to help plan administrators implement the waiver.  The guidance also provides rollover relief for plan participants who have who have already received their 2009 RMDs.

Background.   WRERA, enacted in late 2008, suspends the RMD rules for certain retirement plans for 2009.  As a result, the 2009 RMDs due by December 2009 (or April 2010 for a participant who turned 70½ in 2009) are waived.  However, the RMDs for participants who turned 70½ in 2008 (that were due in April 2009) are not waived, and RMDs will once again be required in 2010.  For beneficiaries of deceased participants, 2009 will not be counted as part of the five-year period during which they must take a distribution.

The waiver was intended to help plan participants whose retirement accounts may have been adversely affected by the 2008 financial crisis. However, the waiver has caused confusion for plan administrators who have been unsure of how to implement the waiver under their current plan documents.

New Guidance.   The recent guidance from the IRS provides operational relief for plan administrators and rollover relief for plan participants.  The guidance also includes two sample plan amendments and the answers to several frequently asked questions about the waiver of 2009 RMDs.  A few highlights of the guidance include:

• Plan Operational Relief.   The guidance provides that a plan will not be treated as failing to operate according to its terms merely because, between January 1, 2009 and November 30, 2009, the plan did not follow its plan provisions with respect to:
  • Paying or not paying 2009 RMDs;
  • Failing to give participants and beneficiaries the option of receiving or not receiving 2009 RMDs; or
  • Offering or not offering a direct rollover option for 2009 RMDs.
• Rollover Relief and Clarification.   For plan participants and beneficiaries who have already received their 2009 RMDs, the guidance  extends  the   usual   60-day   rollover   period   until November 30, 2009.   The guidance clarifies that 2009 RMDs may be rolled over so long as other rollover rules are met. However, plans are not required to offer direct rollovers, provide a rollover notice, or apply the mandatory 20% withholding to these amounts.
• Sample Plan Amendments.   Plans must adopt plan amendments that reflect the plan’s treatment of 2009 RMDs by the last day of the 2011 plan year.   Accordingly, the guidance provides two alternative sample plan amendments, both of which allow participants and beneficiaries to choose between receiving and not receiving 2009 RMDs.

Contact Information. For additional information, please contact Toby Walls (404.888.8870).

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