Benefits & ERISA Law

Rapid Fire Required Minimum Distribution Guidance for 2008 and 2009

By Suzanne Wynn

Late in 2008, when the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) was signed into law, one of the provisions it contained was a waiver of Required Minimum Distributions (RMDs) for 2009 (not for 2008) for retirement plans which hold each participant’s benefits in an individual account, such as 401(k) plans, 403(b) plans, and certain 457(b) plans. WRERA also waives RMD distributions for IRAs. In rapid fire, the IRS has provided this guidance:

Notice 2009-9, which clarifies that most participants and beneficiaries who are required to take minimum distributions from these types of accounts are not required to withdraw any amount in 2009. RMDs are not waived for 2008, even for individuals who were eligible and chose to delay taking their 2008 RMD until April 1, 2009, such as those retired employees and IRA owners who turned 70.5 in 2008. These individuals must still take their full 2008 RMD by April 1, 2009, but they may postpone taking their 2009 RMD until April 1, 2010.

A Special Edition of Retirement News for Employers, which summarizes the information contained in Notice 2009-9. It also explains that if a beneficiary is receiving distributions over a 5-year period, they can now waive the distribution for 2009. This means that they will effectively be taking distributions over a 6-year period rather than a 5-year period. While Notice 2009-9 provides that Box 11 of Form 5498 (IRA Contribution Information) should not be checked for 2008, this special edition of Retirement News for Employers recognizes that there may not be sufficient time for financial institutions to change their programming to comply with this requirement. For this reason, the IRS states that it will not consider a 2008 Form 5498 issued incorrectly solely because it contains a check in Box 11 as long as the financial institution notifies the recipient by March 31, 2009, that no RMD is required for 2009.

Notice 2009-9 also modified Notice 2002-27 without explanation. This special edition of Retirement News for Employers explains that RMD information required under Notice 2007-27 does not need to be sent to IRA owners for 2009. If a financial institution sends a separate RMD statement to an IRA owner, either initially or in respones to the owner’s request for the financial institution to calculate the RMD for 2009, the financial institution may show the RMD for 2009 as zero. Alternatively, the financial institution may send the IRA owner a statement showing the RMD that would have been required but for the waiver of RMDs for 2009, along with an explanation of the waiver for 2009 RMDs.

The date to adopt an amendment to reflect this RMD waiver for 2009 is on or before the last day of the first plan year beginning on or after January 1, 2011 as provided for in Section 201(c)(2)(B) of WRERA. For governmental plans, the date to adopt an amendment is on or before the last day of the first plan year beginning on or after January 1, 2012.

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Full post as published by Pension Protection Act Blog on January 12, 2009 (boomark / email).