The IRS addressed concerns of defined contribution plan sponsors regarding the administration of the 2009 waiver of required minimum distributions ("RMD") in its Notice 2009-82, issued September 24, 2009, which provides:
- Transitional relief through November 30, 2009 for operational failures relating to RMDs
- Rollover relief to participants who have already received a distribution of what would have been an RMD in 2009, providing an extension of the 60-day rollover requirement to no earlier than November 30, 2009, and permitting plans to accept rollovers of 2009 RMDs back in to the plan
- Sample plan amendments for plan sponsors to use or to customize to fit their plans by the end of the 2011 plan year
Background – Internal Revenue Code ("Code") Section 401(a)(9) generally requires tax-qualified plans to distribute a portion of a participant's interest in the plan by April 1 of the year following the year in which a participant retires or attains age 70-1/2, whichever is later. In response to poor market conditions in late 2008, Code Section 401(a)(9) was amended to suspend RMDs relating to 2009 for IRAs and defined contribution plans (not defined benefits plans). RMDs made by April 1, 2009 are considered 2008 RMD and are not waived.
The 2009 RMD is now optional. Plans that incorporate Code Section 401(a)(9) by reference automatically adopted the waiver of the RMD requirement for 2009, but can opt out of the waiver and make the 2009 RMD. This would require a plan amendment. Plan sponsors must begin thinking about whether they would like to give participants the choice regarding whether to take RMDs for 2009, whether they will force distributions in 2009 regardless of the waiver, and whether their plans must be amended to reflect these decisions.
Transition Relief – Plan sponsors have until November 30, 2009 to comply in operation with their choices regarding RMDs, and until December 31, 2011 to amend their defined contribution plans. Operational failures relating to RMDs that occur between January 1, 2009 and November 30, 2009 will not be considered qualification failures under the IRS Notice.
Rollover Relief – Plan participants who have already received a 2009 RMD or a distribution that includes a 2009 RMD have been granted an extension of the 60-day rollover to a date no earlier than November 30, 2009. Plan sponsors may allow participants to rollover such a distribution back into their plan.
Sample Amendments – The Notice provides two sample plan amendments, both of which provide participants with a choice of whether to take a 2009 RMD. One amendment provides for an RMD if a participant fails to elect otherwise; the other does not distribute the 2009 RMD if the participant does not make an election. The amendments can be customized to fit the terms of your plan.