IRS Guidance on 2009 Waiver of Required Minimum Distributions
Rev. 10/09/09; E-mail Alert 2009-16

On September 24, 2009, , IRS issued Notice 2009-82 providing guidance, transitional relief, sample plan amendments and answers to questions related to the waiver of 2009 required minimum distributions (RMDs) from defined contribution plans (such as 401(k) plans, 403(b) plans and certain 457(b) plans) and from individual retirement arrangements (IRAs).

The Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) allows for the waiver of  RMDs for 2009. WRERA allows plan sponsors to make plan or contract amendments related to the 2009 RMD waiver up to the last day of the first plan year beginning in 2011 (2012 in the case of a governmental plan) as long as the plan or contract operates as if the amendments were in effect from its effective date.

As part of the rules for the waiver of 2009 RMDs, distributees may roll over any amount they received from a defined contribution plan that would have been an RMD for 2009 but for WRERA and that otherwise meets the definition of an eligible rollover distribution (ERD). However, the distribution is not treated as an ERD for purposes of:

• requiring the plan to offer a direct rollover of that amount,
• mandatory 20% withholding or
• providing an ERD notice to the distributee.

Transitional Relief for Plan Sponsors
The IRS recognizes that many plans, due to the enactment of WRERA shortly before the beginning of 2009, were unable to timely modify their administrative procedures to stop, or give participants and beneficiaries the choice to stop, 2009 RMDs. Therefore, the IRS will NOT consider a plan to have failed to operate in accordance with its terms merely because during the period beginning on January 1, 2009, and ending on November 30, 2009, the plan’s operation conflicts with the adopted sample amendment. This transitional relief is granted whether or not a plan:

• paid distributions that equal the 2009 RMDs or that are one or more payments in a series of substantially equal distributions (that include 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 at least 10 years;
• gave participants and beneficiaries the option of stopping 2009 RMDs;
• gave participants and beneficiaries the option to continue 2009 RMDs; or
• gave participants the option to directly roll over certain RMD-related distributions described in the adopted sample amendment.

Additional Guidance
Notice 2009-82 contains a Q&A section to address issues raised from the public regarding the 2009 RMD waiver.

• The deadline for an employee or a beneficiary that had until the end of 2009 to choose between receiving distributions under the 5-year or the life expectancy rule is extended until the end of 2010.
• In plans that permit a nonspouse designated beneficiary to directly roll over a deceased participant’s account balance, the special rule in Notice 2007-7 is modified so that, if the employee died in 2008, the nonspouse designated beneficiary has until the end of 2010 to make the direct rollover and use the life expectancy rule.
• Only for 2009, if an individual receives a plan distribution that includes a 2009 RMD, the portion of the distribution that represents the 2009 waived RMD is subject to the optional 10% withholding rules under §3405(b) and any remaining portion is subject to the 20% mandatory withholding rule of §3405(c) (assuming the distribution otherwise qualifies as an ERD). Any distributions made in 2009 are deemed to consist first of any undistributed RMDs from prior years followed by 2009 RMDs.

Plan Amendments
Notice 2009-82 provides two sample plan amendments that individual or pre-approved plan sponsors may adopt or use to amend their plans. The amendments permit participants to choose to receive or not receive 2009 RMDs, but only if the distribution(s) are:

• equal to the 2009 RMDs; or
• one or more payments 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 at least 10 years.

Depending on which sample amendment a plan chooses to adopt, the plan can either:

• cease making 2009 RMDs unless a participant or beneficiary elects otherwise; or
• continue making 2009 RMDs unless a participant or beneficiary elects otherwise.

Both sample amendments provide direct rollover options (in addition to those already offered by the plan) that plan sponsors can choose to offer. Plan sponsors may need to tailor the sample amendment to their plan’s particular terms and administrative procedures and must adopt the amendment no later than the last day of the first plan year beginning on or after January 1, 2011 (January 1, 2012, for governmental plans). The IRS will not treat an employer’s adoption of one of these sample plan amendments (including necessary modifications) as affecting their master and prototype or volume submitter plan’s pre-approved status. Nor will such adoption affect the status of an individually designed plan. Thus, such employers can continue to rely on their favorable opinion, advisory or determination letters.

Bill Grossman, ERPA, QPA

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