Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

D. An annuity for a period certain, with no life component. Reg § 1.401(a)(9)-6 , A-1(a), first sentence. If the ASD is on or after the participant’s RBD, the period certain must not be longer than whichever of the following is applicable. (If the ASD is before the RBD, see ¶ 10.2.09 .) 1. The General Maximum Period Certain is the Applicable Distribution Period (ADP) from the Uniform Lifetime Table (see Appendix A) determined using the participant’s age in the calendar year the ASD occurs. Reg. § 1.401(a)(9)-6 , A-1(a), A-3(a), first sentence. For example, if the participant’s ASD is in the year she turns 71, the General Maximum Period Certain would be 26.5 years; the participant could elect to receive annuity payments for a fixed term of 26.5 years. If she lives longer than 26.5 years? Too bad. Under this option, her payments end after 26.5 years. If she dies in less than 26.5 years, her beneficiary would receive the payments for the balance of the 26.5-year term certain. 2. The Special Maximum Period Certain is the ADP determined using the IRS’s Joint and Survivor Life Expectancy Table (found at Reg. § 1.401(a)(9)-9 , A-3), based on the ages the participant and spouse attain on their birthdays in the year of the ASD. This Special Maximum Period Certain applies only if the participant’s sole beneficiary is his spouse, and only if it provides a longer payout period than the General Maximum Period Certain. Reg. § 1.401(a)(9)-6 , A-1(a), A-3(a), last sentence. If either spouse lives past that fixed term, too bad—the payments will stop when the term expires. E. Life annuity with period certain. The employee can elect a life annuity (“A” above) or a joint and survivor life annuity (“B” or “C” above) with a minimum guaranteed term. The minimum guaranteed term can be any term that does not exceed the General Maximum Period Certain described at “D(1)” above, namely, the ADP determined under the Uniform Lifetime Table using the participant’s attained age as of his birthday in the year of the ASD. Reg. § 1.401(a)(9)-6 , A-1(b), A-2(d), A-3(a). Note that, even if the employee’s sole beneficiary is his more-than-10-years-younger spouse, the joint and survivor life expectancy of the participant and spouse (the Special Maximum Period Certain in “D(2)” above) cannot be used as a minimum guaranteed term in conjunction with a life annuity. It can be used as a period certain on its own but not in conjunction with a life annuity. The “E” option is the most complicated, because of the interaction of the period certain and the MDIB rule. Which form of benefit should a participant choose? See ¶ 10.4 .

Payments must be nonincreasing, except…

The other core provision of the regulation is that the annuity payments generally may not increase after the ASD. Reg. § 1.401(a)(9)-6 , A-1(a). After all, the purpose of the DB plan RMD rules is to prevent “backloading” the distributions; Congress wants to collect taxes on this pension within a reasonable timeframe.