{"id":32499,"date":"2008-03-26T16:35:41","date_gmt":"2008-03-26T21:35:41","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/guidance-on-new-minimum-distribution-requirements.html"},"modified":"2008-03-26T16:35:41","modified_gmt":"2008-03-26T21:35:41","slug":"guidance-on-new-minimum-distribution-requirements","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/finance\/guidance-on-new-minimum-distribution-requirements.html","title":{"rendered":"Guidance on New Minimum Distribution Requirements"},"content":{"rendered":"
\n
\n

This article was edited and reviewed by FindLaw Attorney Writers<\/a><\/em><\/p>\n\n | Last reviewed\n

\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
\n

This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
\n

The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n\n\n\n

As you may be aware, the Small Business Job Protection Act ("SBJPA") amended Code Section 401(a)(9). Previously, all qualified plans were required to make minimum distributions to participants by April 1 of the year following the calendar year in which they attained age 70Þ, regardless of whether the participant had retired. The SBJPA maintains these rules for five percent owners. For all others, distributions need not begin until the later of<\/u> a participant (1) attaining age 70Þ and (2) retiring.

The right to commence benefit distributions at a particular time is an optional form of benefit under a plan. Code Section 411(d)(6) provides, in part, that a plan may not eliminate an optional form of benefit. Treasury is authorized to provide that this rule will not apply to a particular type of plan amendment. In enacting the changes to Code Section 401(a)(9), Congress did not change the application of Section 411(d)(6). Therefore, absent regulatory relief, a plan amendment eliminating the right of a participant to receive "in service" benefits after age 70Þ would violate Code Section 411(d)(6).<\/p>

The IRS recognized this conflict and issued Announcement 97-24 which permits a plan amendment that gives employees the option of commencing distributions at age 70Þ or deferring commencement until after retirement. In addition, there is no violation of Section 411(d)(6) if an employer amends a plan to eliminate the right to "in service" distributions (post 70Þ) with respect to future benefit accruals only. However, the IRS acknowledged that these alternatives were too complicated and issued Proposed Regulations providing relief from Code Section 411(d)(6) for plans which eliminate post 70Þ "in service" distributions.<\/p>

The Proposed Regulations provide that: (1) an amendment to eliminate "in service" distributions may apply only to benefits with respect to employees who attain age 70Þ in or after a calendar year that begins on or after the later of December 31, 1998 and the adoption date of the amendment; (2) a plan must not preclude an employee who retires after the calendar year in which he attains age 70Þ from receiving an optional form of benefit that would have been available if he or she had retired in the calendar year in which he or she attained age 70Þ; and (3) an amendment to eliminate a preretirement age 70Þ distribution option must be adopted no later than the last day of the remedial period for SBJPA changes (the last day of the 1999 plan year). The Proposed Regulations are not effective with respect to plan amendments until after final regulations are adopted.<\/p>

The Proposed Regulations provide examples of circumstances in which the relief it grants may be required. In example one, a defined benefit plan provides a qualified joint and survivor annuity ("QJSA") that begins at the later of age 65 and retirement, subject to a provision that benefits must commence on April 1 of the year following the year the employee attains age 70Þ. An amendment which eliminates the required distribution at 70Þ must qualify under the Proposed Regulations because it otherwise would violate Code Section 411(d)(6). The second example is a money purchase plan which grants the employee the right to choose either a QJSA or a lump sum distribution at any time after age 65, but requires that either distribution form must begin at age 70Þ. The Proposed Regulations explain that in order to amend such a plan to eliminate the "in service" required distribution at age 70Þ, the amendment must qualify for relief under the Proposed Regulations.<\/p>

The Proposed Regulations also provide an example of a situation in which no relief is required. Many plans currently permit participants to elect distributions at any time after reaching age 59Þ. Such a plan could eliminate mandatory age 70Þ distributions without risking a violation of Section 411(d)(6) because participants would still have the ability to elect to receive distributions under the existing elective distribution provisions of the plan.<\/p>

Implementation of the new minimum distribution requirements requires careful analysis of existing plan documents to determine the best course of action for a particular plan.<\/p><\/div>","protected":false},"excerpt":{"rendered":"

As you may be aware, the Small Business Job Protection Act (“SBJPA”) amended Code Section 401(a)(9). Previously, all qualified plans were required to make minimum distributions to participants by April 1 of the year following the calendar year in …<\/p>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_categories":[6480,6479],"class_list":["post-32499","corporate","type-corporate","status-publish","hentry","corporate_categories-finance__bankruptcy","corporate_categories-finance"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate\/32499","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=32499"}],"wp:term":[{"taxonomy":"corporate_categories","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_categories?post=32499"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}