Industry News

On March 1, 2022, the Groom Law Group released its issue brief, IRS Revamps Minimum Required Distribution Rules. The brief summarizes the proposed regulations issued on February 24, 2022, by the Internal Revenue Service (IRS) related to required minimum distributions (RMDs). These regulations would implement the major changes made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and other statutory changes since the existing regulations were issued as well as clarify certain issues raised in public comments and private letter ruling requests. The proposed regulations would impact the calculation of RMDs from qualified 401(a) plans, 403(b) tax-deferred annuities (TDAs), governmental 457(b) plans and IRAs. 

Under Internal Revenue Code (IRC) Section 401(a)(9), qualified plans must provide for minimum distributions for participants that have reached the “required beginning date” (i.e., the date that determines when participants must start receiving RMDs). The SECURE Act changed the required beginning date from age 70-1/2 to age 72. This change was applicable to all types of retirement plans and applied to distributions required to be made after December 31, 2019. 

The brief highlights the key changes under the proposed regulations that would affect the following: 1) defined benefit (DB) plans; 2) defined contribution (DC) plans/IRAs; 3) rollovers; and 4) 403(b) and 457(b) plans. The comprehensive proposed regulations revise the current regulations to eliminate the question and answer format. Generally, most of the RMD rules remain unchanged; however, there are several changes and various examples that illustrate the rules. 

Compliance with these rules may present some significant challenges for communications, system redesign and plan documentation. The plan documents, summary plan documents and administrative practices will need to be reviewed and amended to address the changes by December 31, 2022 or December 31, 2024 for governmental plans. For 2021 distributions, plan sponsors must apply the existing regulations, but also consider a reasonable, good faith interpretation of the SECURE Act’s changes.

The proposed regulations are intended to become effective for distributions for calendar years beginning on and after January 1, 2022. Comments on the proposed regulations are due by May 25, 2022 and a public hearing is scheduled for June 15, 2022.

The brief is available here.