IRS Provides Guidance and a Sample Amendment for CARES Act RMD Waivers

The IRS has issued a notice providing guidance on the waiver of required minimum distributions (RMDs) for defined contribution plans (including 401(k) plans) for calendar year 2020 under the Coronavirus Aid, Relief, and Economic Security (CARES) Act (see our Checkpoint article). The notice permits rollovers of amounts that would have been RMDs in 2020 and of certain related payments, extends the 60-day deadline for such rollovers, answers questions relating to the RMD waiver, and provides a sample plan amendment to implement the waiver. In addition, the notice provides rollover and transition relief for certain distributions in 2020 that would have been RMDs if the age used to define a participant’s required beginning date had not been increased from 70-1/2 to 72 by the Setting Every Community Up for Retirement Enhancement (SECURE) Act (see our Checkpoint article). Here are highlights:

• CARES Act Rollover Guidance. The notice allows distributions paid in 2020 (or in 2021 for the 2020 calendar year) to be rolled into an eligible retirement plan if they are (a) equal to the amount that would have been RMDs in (or for) 2020 absent the waiver, or (b) payments in a series of equal periodic payments made at least annually and expected to last for the participant’s life or life expectancy, the joint life or life expectancies of the participant and a designated beneficiary, or a period of at least ten years. In addition, for plan participants with a required beginning date of April 1, 2021, distributions paid in 2021 that would have been RMDs for 2021 may be rolled over to the extent an earlier distribution in 2021 has satisfied the 2021 RMD obligation.
• SECURE Act Transition Guidance. Plan administrators are not required to treat a distribution made in 2020 to a participant attaining age 70-1/2 in 2020 as an eligible rollover distribution for purposes of certain Code requirements relating to direct rollovers, notices, and tax withholding. Consequently, if a plan improperly characterizes such a distribution as an RMD, the plan will not be considered to have failed to meet those requirements.
• Extension of Rollover Deadline. Although eligible rollover distributions normally must be rolled over within 60 days of receipt, the deadline for rolling over a payment described in the notice’s CARES Act rollover guidance or its SECURE Act transition guidance is no earlier than August 31, 2020. [EBIA Comment: Some 2020 RMDs that are now rollable might benefit from the previously granted extension permitted in response to the COVID-19 emergency, but that extension currently ends on July 15, 2020, and it applies only if the rollover deadline was on or after April 1, 2020, and before July 15, 2020 (see our Checkpoint article), so it would not apply to some distributions made early in 2020.]
• Other Issues. Question-and-answer guidance in the notice addresses a number of issues relating to the RMD waiver, including the deadline for electing whether RMDs will be determined under the five-year rule or the life expectancy rule, the deadline for a nonspouse designated beneficiary to make a direct rollover, whether the waiver affects an individual’s required beginning date, and how the waiver affects employees with a required beginning date in 2021. The Q/As also note deadlines that are not affected by this guidance, explain when spousal consent may be needed, and confirm that distributions may be rolled back into the same plan if the plan so permits and other applicable requirements are met.
• Sample Plan Amendment. The appendix provides a sample plan amendment—structured as an amendment to a basic plan document and an adoption agreement—that allows the employer to specify the effective date for allowing participants to choose whether to receive 2020 RMDs, whether participants or beneficiaries who do not make an election will or will not receive 2020 RMDs, and which distributions will be treated as eligible rollover distributions in 2020 for purposes of the plan’s direct rollover provisions. Plans that do not use this two-part format can modify the sample as needed.

EBIA Comment: This notice resembles guidance provided by the IRS when RMDs were last waived in 2009 (see our Checkpoint article). But the circumstances are so different that plans will not be able to simply replicate the actions they took in 2009. The new notice will require some study and a coordinated response, but employers and plan administrators will likely appreciate the detailed guidance (including the generous rollover deadline extension for 2020 RMDs) when deciding how to implement the changes to the RMD rules. For more information, see EBIA’s 401(k) Plans manual at Sections XII.I (“Required Minimum Distributions”), XIV.B (“Defining an Eligible Rollover Distribution”), and XIV.D (“Sixty-Day Rollover Distributions”).

Contributing Editors: EBIA Staff.