428 / 507
428
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.
10.2.02
Differences between DB, DC plan rules
Here are the differences between the familiar DC plan RMD rules explained in
Chapter 1and 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 .10.2.03
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 se
e ¶ 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.
10.2.04
Permitted forms, durations, of annuity