2009 Required Minimum Distributions (RMD's)

Late in 2008, legislation was passed and signed by President Bush which suspends the minimum distribution requirements for 2009 for individuals who are 70 ½.  Therefore, no minimum distributions are required for 2009.  The waiver does not apply to defined benefit plans.  The following are some key points regarding the suspension:

• The RMD waiver includes required distributions to participants and beneficiaries (e.g. death distributions).
  
  
• An individual’s required beginning date is determined without regard to the 2009 RMD waiver for purposes of determining subsequent years RMD’s.
  
  
• Unless a participant specifically requests the 2009 RMD, the RMD will automatically be waived.  Plans cannot deny this request assuming the IRS does not issue further guidance.
  
  
• The law includes special administrative rules for “waived” RMD’s that are still distributed at the election of the participant.  Generally speaking, this means the amount is an eligible rollover distribution and that the Plan must 1) offer it as a direct rollover, 2) apply mandatory 20% withholding if taken as a taxable distribution, and 3) furnish the direct rollover notice to employees.
  
  
• For RMD death distributions made under the 5 year rule, the deadline is extended by an additional year.
  

It is important to note that TSC will not be initiating 2009 RMD’s unless specifically instructed to do so.  Please contact your TSC Retirement Plan Administrator for more information.

The EGTRRA Restatement, the required plan rewrite for the purpose of incorporating retirement plan law changes into the new IRS approved document, is well under way here at TSC.  You can find more details on the EGTRRA Restatement by visiting our website www.tsc401k.com.

The EGTRRA Restatement affects all profit sharing/401(k) and similar Defined Contribution plans.  The deadline to complete the restatement of each plan is April 30, 2010.

Our goal is to make the restatement process easy for you.  As a reminder, if you are contemplating any design or operational changes to your plan, a good time to implement the change is with your EGTRRA Restatement. Please be aware that IRS rules dictate when plan documents must be amended to reflect changes for a plan year.

The deadline has passed to make changes to plans that are to be effective in 2008 or that have to be adopted by the end of 2008 for implementation on January 1, 2009.

A note about 403(b) Plans and Defined Benefit Plans

All 403(b) Plans must be amended for EGTRRA and Final 403(b) regulations effective January 1, 2009.  These amendments must be signed by December 31, 2009, under a recently issued extension from the IRS.  We have begun working on our clients’ 403(b) plans and we will complete these amendments (as newly restated documents) in the next few months. This will include the final regulations provisions as well as the language required under the Pension Protection Act (PPA).  Defined Benefit plans are on a different 6-year cycle than Defined Contribution plans, and the restatement of those plans is scheduled to begin in 2010, after the defined contribution plans are all done.

The current economy has many people scrambling to secure their retirement money.   Plan participants may be asking if it makes sense to continue contributing to the 401(k) Plan.  They see losses on each quarterly report and don’t know what to do.  Retirement Readiness is the same today as it has been for many years:  Stay the course and advise participants to continue their deferrals.

Daily recession news has 401(k) investors understandably worried.  So now’s the perfect time to have your Investment Advisor help your plan participants review their investment choices.  It’s also a good time for you to check the status of that plan.  Is your plan successful?

Many of you who read the Translator are Plan Sponsors.  As such, you have a fiduciary duty to protect and preserve the plan participants’ benefits.  Perform your due diligence and review your company’s 401(k) Health Check.  It’s an easy litmus test to show whether your company is on track.  Find out if at least 2/3 of your plan participants are contributing enough to their retirement plan to attain 75% or more of their salary upon retirement.

Since so few have been exempt from this losing economy, you as a sponsor may be forced into lowering your corporate contribution to the plan, either through the match or a profit sharing allocation.  You may not have a choice.  But it is very important for your investment advisor to continue to stress with each and every plan participant the importance of maintaining or even increasing their deferrals.

Despite all the hype, your plan participants need to know 401(k) retirement plans are not broken and don’t need government intervention.  But they do require patience from younger investors and an acknowledgement that these are long-term investments.  Some plan participants with fewer years to contribute, however, may need to look to products that offer a guarantee.  Your Investment Advisor has those details and should meet soon, if they haven’t already, with all participants to review their individual needs and concerns.

I couldn’t help but notice a TV commercial that appeared the other night sponsored by Ameriprise.  Dennis Hopper, the co-star of a 1970’s movie called “Easy Rider”, was talking about the importance of retirement planning.  I bring this up because as he made a statement that while simple, is quite profound.  He said, “You can’t start the journey (retirement) without knowin’ where you’re goin.’”  I think that statement says it all.  Most of us spend more time planning our vacations than we do our retirement needs.  I believe now is the most opportune time for each participant to establish a meaningful plan and start "knowin’ where they're goin'."

Generally speaking, yes you can. However, this topic is not normally addressed in a plan document, though it may appear in a Summary Plan Description (SPD) as a general statement that fees for participant transactions may be charged to individual accounts.

Several funding companies allow the fee to be added to their distribution/loan forms. Some funding companies will automatically withdraw these fees by setting up a contract with the plan sponsor.

In cases where the funding company payout form does not offer this option, or no contract agreement exists, the fee must be charged to the plan sponsor.

Please call your TSC Retirement Plan Administrator if you would like more information.

Whether a “layoff” is a termination of employment or a leave of absence is an important distinction that needs to be made by the employer.  This distinction will affect how the participants are treated for retirement plan purposes.  Often, how an employee is treated for other employment purposes (health insurance, unemployment compensation) helps determine an employee’s status.  However, a relatively clear indicator of employment termination is if the employee is collecting unemployment benefits.

According to the Department of Labor regulations, a “layoff” means a termination or severance of the employment relationship initiated by the employer as the result of a lack of work.  Under this definition, the layoff of a plan participant constitutes a distributable event from a retirement plan and the terminated employee should be afforded the opportunity to receive a distribution of their vested account balance.  Plan Sponsors need to advise participants of this right and supply a copy of the plan’s distribution election forms, which are always available on your TSC secure site.

An employer initiated layoff, or series of layoffs, that is not in the normal course of business that terminates more than 20%, terminating more than 20% of the retirement plan participants that results in a partial plan termination requires that the affected participants be made 100% vested in their current account balance.  However, a subsequent rehire of the same employee would not result in 100% vesting of future employer contributions.  Future employer contributions will again be subject to the plan’s vesting schedule.

For more information regarding partial plan terminations, reference the January/February issue of the TSC Translator.  If you are unsure if your plan has experienced a partial plan termination or if you have questions about this subject, please contact your TSC Retirement Plan Administrator.