June 29, 2020Client Alert

2020 RMDs – An Update for Plan Participants and Sponsors

The Internal Revenue Service (IRS) issued welcome guidance, clarifying the rules for waivers of retirement plan required minimum distributions (RMDs). The guidance implements RMD waivers for 2020 as part of the CARES Act, and covers certain similar issues under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which, as a reminder, was enacted in 2019 as part of a year-end funding measure. Note that RMD relief is not available for distributions from defined benefit plans (e.g., pension plans) for 2020.

IRS Notice 2020-51 includes certain transition relief, a set of 12 questions and answers and a sample plan amendment.  As expected, the Notice adopts transition relief and guidance that is similar to that provided in Notice 2009-82 (released in response to the 2008 financial crises), but takes into consideration some differences in the current environment, including the sunset of the ongoing determination letter program. 

Of particular note, the IRS clarifies the following:

  • 60-Day Roll Over Window:
    • Under the standard rules, 2020 RMDs taken on or before January 31, 2020, could have been rolled over (or “rolled back” to the extent the plan permits rollover contributions) within 60 days. With this deadline passed, Notice 2020-51 permits RMDs made in January of 2020 to be rolled over, thus filling a gap in prior guidance.
    • 2020 RMDs taken between February 1, 2020, and May 15, 2020 (for which the 60-day rollover deadline would’ve fallen between April 1, 2020, and July 15, 2020) had already been granted a rollover deadline extension until July 15, 2020. Notice 2020-51 further extends this rollover deadline for these 2020 RMDs to August 31, 2020.
    • Now, under the new guidance, there is expansive relief allowing for all defined contribution plan 2020 RMDs to be rolled over through August 31, 2020.
  • Required Beginning Date:
    • The IRS reconfirmed that waiver of 2020 RMDs does not change an individual’s required beginning date, providing the following example:
    • If an individual has a required beginning date of April 1, 2020, and dies after April 1, 2020, then that individual will be treated as having died after his or her required beginning date regardless of whether that individual had commenced receiving distributions or had delayed commencing distributions until 2021.
  • Plan Amendment:
    • The sample amendment issued by the IRS differs from the 2009 approach; instead of proposing a sample amendment for a default of no payment of an RMD (absent an election to receive it) or default of RMD (absent an election not to receive it), this draft amendment,  if adopted, would provide participants a choice whether to receive waived RMDs and certain related payments.
    • Given the IRS’s “push” to use pre-approved plans (i.e., prototype and volume submitter plans), this sample amendment is made to pair with a basic plan document / adoption agreement approach. 
    • The adoption of the sample plan amendment (as modified, if necessary, to conform to a plan’s terms and administrative procedures) will not result in the loss of reliance on a favorable opinion, advisory, or determination letter. Also, an employer’s adoption of one of the options under the sample plan amendment (as modified, if necessary, to conform to a plan’s terms and administrative procedures) will not cause the plan to fail to be a pre-approved plan.
    • As a reminder, defined contribution plans must adopt plan amendments reflecting the new RMD rules no later than the last day of the first plan year beginning on or after January 1, 2022 (i.e., December 31, 2022 for calendar year plans).   
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