Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

The final regulation applies to distributions in 2006 and later years. For 2003–2005, distributions “based on a reasonable and good faith interpretation” of § 401(a)(9) will satisfy the RMD rules. Reg. § 1.401(a)(9)-6 , A-17.

Differences between DB, DC plan rules

Here are the differences between the familiar DC plan RMD rules explained in Chapter 1 and the lesser-known DB plan RMD rules covered in this Chapter:

A. There is no account balance in a DB plan. See Ralph Example, ¶ 10.2.08 .

B. The annuity payments are the RMD. Once the participant’s plan benefit has been annuitized, each year’s payments under the contract apparently are the RMD for that year with respect to that benefit. See Reg. § 1.401(a)(9)-6 , A-1(a), § 1.401(a)(9)-5 , A-1(e). As RMDs, the annuity payments are not eligible for rollover. § 402(c)(4)(B) , § 408(d)(3)(E) , Reg. § 1.402(c)-2 , A-7(c). See ¶ 2.6.02 (B). This is apparently true even if the participant could have elected some other form of annuity contract that would have paid him a smaller annuity. See Clyde Example, ¶ 10.3.01 . C. RMD rules apply after ASD, even if before the RBD. Unlike with a DC plan, the DB RMD rules will apply to the annuity prior to the RBD, if the annuity payments start before the RBD. See ¶ 10.2.09 .

D. Postponing the start of annuity distributions until the RBD does not require a “double distribution” in the second Distribution Year. See ¶ 10.2.07 .

Payment intervals; other DB terminology

The DB plan RMD rules contemplate that benefits are paid in the form of an annuity: level payments made at regular intervals over a predetermined period of time. The interval between payments ( payment interval ) may not exceed one year (the usual interval is monthly payments), and must be the same throughout the distribution period. Reg. § 1.401(a)(9)-6 , A-1(a). (For exceptions to this rule see ¶ 10.2.05 .) The annuity may be paid to the participant (or beneficiary) directly from the plan’s assets, or the plan may purchase an annuity contract from an insurance company and transfer the contract to the participant or beneficiary. Buying an annuity contract or electing a particular form of annuity benefit (i.e., “annuitizing” the participant’s benefits) is an insurance transaction, involving a shifting of investment and/or longevity risk. See Wanda Example, ¶ 10.2.06 . The annuity starting date (ASD) is the first day of the first period for which an amount is received as an annuity. § 1.72-4(b) . This is the date when the participant’s accrued benefit in a DB plan (or account balance in a DC plan) is converted to an annuity payout, that is to say, is “annuitized.” The ASD may be difficult to determine if the participant starts payments while he is still working and accruing further benefits, or starts receiving payments then stops them when he resumes employment, or does not start payments until some time after retiring.

Permitted forms, durations, of annuity