The IRS released two relief measures for defined benefit plans, postponing the date when those plans must be amended to comply with minimum distribution rules published in April (see IRS Releases Final RMD Revisions ), and in a further reassuring note, indicating that forthcoming regulations will provide two transition rules for the plans.
The new rules for required minimum distributions, or RMD, which go into effect January 1, 2003, for distributions from defined contribution plans and individual retirement accounts narrowed requirements regarding the rate at which distributions from defined benefit annuities can increase, significantly simplifying options.
According to the newly released Revenue Procedure 2003-10 , the IRS said that defined benefit plans need not be amended to comply with the requirements of the § 401(a)(9) Final and Temporary Regulations until the end of the EGTRRA remedial amendment period (the last day of the first plan year beginning on or after Jan. 1, 2005), while the requirement to amend pre-approved defined benefit plans by December 31, 2003, is postponed until further notice. However, that postponement does not apply to defined contribution plans, the IRS noted.
Additionally, until further notice, the IRS said that determination letters submitted on or after the first day of the first plan year beginning on or after Jan. 1, 2003, will take into account the statutory rules of Section 401(a)(9) governing required minimum distributions, but not the final and temporary regulations.
In Notice 2003-2 , the IRS said that in the interest of further consideration of the new restrictions on variable annuity payments – and to relieve plans from making changes in the meantime – final regulations expected to be released in 2003 would probably include a transition rule providing that a defined benefit plan or annuity contract could make distributions according to provisions of regulations proposed in 1987 and 2001 instead of the provisions in the final and temporary regulations.
Both transition rules are expected to apply at least through the end of the calendar year in which final regulations are published, the IRS said.
Until the effective date of the forthcoming final regulations, nongovernmental plans must satisfy in operation the requirements of the final and temporary regulations taking into account transition rules provided in the accompanying Notice 2003-2, irrespective of whether the plan has been amended to comply with the regulations. Governmental plans may rely on a reasonable good faith interpretation of Section 401(a)(9) until the effective date of final regulations.
Comments received from representatives of governmental plans after the release of the proposed regulations suggested that the backloading concerns expressed were unfounded in the case of public plans, which are established by state and local governments and subject to the oversight of governmental bodies and taxpayers. The IRS said in Notice 2003-6 that, in order to allow for further consideration of whether and to what extent special consideration should be provided to governmental plans, it anticipates that future regulations will provide a special effective date for those plans that is not expected to be earlier than the first calendar year beginning after the later of:
- the calendar year in which final regulations are published; or
- 90 days after the opening of the first legislative session, beginning on or after the date the final regulations are published, of the governing body authorized to amend the plan.
The IRS also said that forthcoming regulations will allow governmental plans to rely on a good faith interpretation of Section 401(a)(9), which will be satisfied by compliance with either the final and temporary regulations, or regulations proposed in 1987 or 2001.
The IRS and Treasury invite comments on the issues identified in these notices. The particulars relating to the timing and delivery of those comments is posted with each notice, or comments may be submitted via the Internet at Notice.Comments@irscounsel.treas.gov .