Keeping compliant with the IRS qualified plan distributions rules isn’t always easy. For that reason, the IRS issues and regularly updates guidance on how to do so. It has done so for the “Cycle E” submission period, i.e., February 2015 through January 2016.

Known as “Explanation No 9,” the document is to be used in conjunction with Form 8387, Worksheet 9 – Determination of Qualification; and Form 8399, Deficiency Checksheet 9.

The basic regulations that those forms and guidance reflect, under Code Section 401(a)(9), have been on the books since 2002. But plans that have been in existence since before 2003 can follow rules for required minimum distributions under regulations proposed earlier, as outlined in Revenue Procedure 2002-29.

Rules and choices

The explanation highlights not only basic distribution rules, but choices plans can allow participants to make if they choose to – or else have that decision made for them by default. For example, plans can choose to let participants decide that if the participant dies before distributions have begun, there are two ways those assets can be distributed:

1. The five-year rule: The remaining undistributed assets are distributed by the end of the calendar year of the fifth year following the participant’s death.

2. The life expectancy rule: The portion of the participant’s interest payable to a designated beneficiary must be distributed, beginning “not later than the end of the calendar year immediately following the calendar year in which the participant died, over the life of the beneficiary over a period not extending beyond the life expectancy of the beneficiary.”

If the plan sponsor decides not to give participants the ability to choose between those two distribution options, the default position is the life expectancy rule.

Distributions to spouses

In the typical situation in which the designated beneficiary is the participant’s surviving spouse, distributions to the spouse “may be postponed until the end of the calendar year in which the participant would have attained 70 1⁄2, and if the surviving spouse dies before distributions to such spouse begin, the date of death of the surviving spouse will be substituted for the date of death of the participant in applying the five-year rule and the life expectancy rule.”  

Also, plans cannot give participants any alternatives to address the scenario in which the participant has already begun receiving distributions from the plan before dying. In that situation, according to Explanation No. 9, “the remaining portion will be distributed at least as rapidly as under the method of distribution being used on the date of the participant’s death using the participant’s remaining life expectancy if there is no designated beneficiary, and if there is a designated beneficiary, using the remaining life expectancy of either the participant or the designated beneficiary, whichever is longer.”

The process of completing the 8387 “Determination of Qualification” form with its 29 questions often leads administrators back to the Explanation No. 9 fine print. Plans that haven’t made any changes in their distribution policies over the past year might be able to sail through the process, however.

Richard Stolz is a freelance writer based in Rockville, Maryland.

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