(b)lines Ask the Experts – Delaying RMDs When Switching to Controlled Employer

I work with the retirement plan of a private university that sponsors an Employee Retirement Income Security Act (ERISA) 403(b) plan.

“We have a professor who, as part of a program to ease the transition of faculty from active employment to retirement, will no longer work for the university itself but a separate foundation that is controlled by the university. She is older than 70 ½ and wishes to continue delaying her required minimum distributions, and our plan document permits her to delay such distribution until the later of 70 ½ or retirement. My question is, is the professor considered to be retired for minimum distribution purposes even though she is still employed by an entity controlled by the university, or can she still delay her RMD?” 

Michael A. Webb, vice president, Cammack Retirement Group, answers:        

Excellent question! As the Experts typically do, we will turn to the relevant Code Section/regulations in this regard. What appears to be the most relevant section of the 401(a)(9) final regulations which address minimum required distributions, states the following:

Q-2. For purposes of section 401(a)(9)(C), what does the term required beginning date mean?

A-2. (a) Except as provided in paragraph (b) of this A-2 with respect to a 5-percent owner, as defined in paragraph (c) of this A-2, the term required beginning date means April 1 of the calendar year following the later of the calendar year in which the employee attains age 70½ or the calendar year in which the employee retires from employment with the employer maintaining the plan.

The boldface text is the Experts’ emphasis. If the individual is no longer working for the employer who maintains your 403(b) plan (and that employer appears to be the university from the way that you posed the question to us), then required minimum distributions should commence. However, if the university remains the ongoing employer of the individual via the controlled foundation, then required minimum distributions could continue to be delayed. If there is any doubt as to whether or not the professor remains employed by the university due to the controlled group issues that you have presented, you should contact benefits counsel with specific expertise in this area to resolve the issue. To further complicate matters in your situation, this particular section of the regulations does not define “retires,” so the fact that the professor Is undertaking this action as part of an apparent retirement incentive program, may be relevant as well.

Thank you for your question!


NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.  

Do YOU have a question for the Experts? If so, we would love to hear from you! Simply forward your question to rmoore@assetinternational.com with Subject: Ask the Experts, and the Experts will do their best to answer your question in a future Ask the Experts column.