2009 Required Minimum Distributions - Transition Relief Ends November 30, 2009

Benefits Brief
November 24, 2009

For 2009 only, Congress has suspended the required minimum distribution (RMD) rules for defined contribution plans such as Section 401(k) plans (although not defined benefit plans), IRAs, Section 403(b) arrangements, and governmental Section 457(b) plans. In Notice 2009-82, the Internal Revenue Service provides guidance on this temporary suspension provision and relief with respect to inconsistent plan provisions.

The Notice provides options regarding both whether to distribute 2009 RMDs and whether distributions of an amount that would otherwise equal the 2009 RMD will be eligible for direct rollover treatment. Plans requiring amendment need to document these choices by the end of the first plan year beginning on or after January 1, 2011 (December 31, 2011 for calendar year plans), and have broad relief with respect to operational failures that may have resulted from inconsistent provisions during the period January 1, 2009 through November 30, 2009.

The guidance clarifies that plans and other forms of retirement arrangements have three choices regarding the distribution of RMDs in 2009: (1) suspend RMDs for 2009, unless the participant affirmatively requests a distribution; (2) distribute all RMDs for 2009, unless the participant affirmatively requests a waiver; or (3) distribute 2009 RMDs as scheduled with no choice by the participant. The guidance also extends the standard 60-day rollover deadline so that participants have until the later of November 30, 2009 or 60 days after receipt to roll a distribution received back into a tax-deferred vehicle.

With respect to whether the distributions are eligible for direct rollover treatment, plans may choose to: (1) allow direct rollovers of 2009 RMDs; (2) not allow direct rollovers of 2009 RMDs; or (3) allow direct rollovers of 2009 RMDs only if they are part of a distribution that would otherwise be an eligible rollover distribution. Any amount paid as a 2009 RMD is not subject to 20% mandatory withholding and a so-called Section 402(f) notice (discussed below) need not be provided.

If we currently provide support in drafting amendments for your individually-designed plan, please contact us so that we may prepare an appropriate amendment for your plan.

New Section 402(f) Notice For Use Beginning January 1, 2010

The Internal Revenue Service has released an updated Section 402(f) notice (actually two notices) — the document previously entitled “Special Tax Notice Regarding Plan Payments.” One explanation now discusses distributions from a designated Roth account, while the other discusses distributions from non-Roth accounts. A participant receiving both Roth and non-Roth funds will need to receive both notices.

The explanations have been updated to reflect other tax law changes since the last update and, effective January 1, 2010, supersede the safe harbor notice currently being used. (The notice(s) may be customized, as appropriate.) If you would like copies, please contact us.