Industry News

On March 6, 2019, the Internal Revenue Service (IRS) and U.S. Treasury Department issued Notice 2019-18, retracting their intention to amend the required minimum distribution (RMD) rules under Internal Revenue Code (IRC) § 401(a)(9). Notice 2019-18 supersedes Notice 2015-49, which stated the intention to propose regulations that would have prohibited qualified defined benefit (DB) pension plans from replacing various types of annuity payments that are currently being paid (i.e., joint and survivor, single life, or other annuities) with a lump sum payment or other accelerated form of distribution.

Under the current RMD regulations, a pension plan may offer a lump sum distribution option during a limited window period to participants who are currently receiving monthly pension payments (sometimes referred to as retiree lump sum windows or lump sum risk transferring/de-risking programs).  DB plan sponsors have used these lump sum distributions to lower their pension plan liabilities, since the lump sum distribution transfers longevity risk and investment risk from the pension plan to the retiree.

In Notice 2019-18, the IRS announced they will not assert that a retiree lump sum window program causes a minimum distribution violation, but will evaluate if the plan, as amended, satisfies other requirements (i.e., nondiscrimination, vesting, maximum benefit limits, qualified joint and survivor payment, and funding-based benefit restrictions). In addition, the Notice also states that the IRS will not issue Private Letter Rulings (PLRs) on retiree lump sum windows.  However, if the plan sponsor is eligible to apply for and receive a determination letter, the IRS will no longer include a caveat expressing “no opinion” on the tax consequences of a retiree lump sum window.

Notice 2019-18 is available here.