A change to required minimum distribution rules for 403(b)
retirement plans proposed by the IRS is causing industry chatter.
Currently, the RMD rules applicable to individual retirement
accounts apply to section 403(b) contracts. As David Levine, principal at Groom
Law Group, Chartered, explains to PLANSPONSOR, that means a participant doesn’t
have to take his RMD amount from each 403(b) contract he has, but can take
calculated amounts from any one plan account.
Also, although IRA trustees are required to report to the
IRS and provide to IRA owners certain information regarding RMDs, such as
whether an RMD is due for a year and the account balance on which it will be
based, the IRS requires no reporting with respect to RMDs from 403(b)
contracts. “Accordingly, a section 403(b) plan is neither required to
automatically make a required minimum distribution for a participant nor
required to inform the IRS or the participant that a required minimum
distribution is due or the account balance on which the distribution is based,”
the IRS explains in its proposed rules.
However, the agency says it is “considering additional
changes to the required minimum distribution rules for section 403(b) plans so
that they more closely follow the required minimum distribution rules for
qualified plans.” Levine says the IRS is proposing to make 403(b)s like 401(k)s
under RMD rules. An RMD would have to be taken from each 403(b) contract,
rather than a participant being able to request his total RMD amount from one
403(b) account.
Levine says this is a big deal because recordkeepers don’t
hold individual annuity contracts for participants and do not have systems in
place to force out an RMD from a 403(b) annuity contract. He adds that
recordkeepers would have to make updates to their systems and 403(b) plans with
individual annuity contracts would have to coordinate RMDs across accounts.
Plan sponsors, dust off your information sharing agreements.
Asked whether he thinks this proposed change will be
finalized, Levine says there’s a chance, but he believes there will be many
comments about it. The comment period for the proposed RMD rules ends May 25.
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