The Internal Revenue Service (“IRS”) issued Notice 2020-51 which provides much needed guidance concerning the waiver of 2020 required minimum distributions (“RMDs”) under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The Notice also includes transition relief for plan administrators regarding the change to the required beginning date for RMDs under the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”).
The SECURE Act, passed in 2019, changed the required beginning date for RMDs to retirement plan participants and IRA owners to April 1 of the calendar year following the year an individual attains age 72 (rather than age 70-½) for any individual who turns 70-½ after December 31, 2019.
The CARES Act waives RMDs for 2020 for IRAs and defined contribution retirement plans (but not defined benefit plans, including cash balance plans). The waiver also applies to the 2019 RMD for individuals who have a required beginning date of April 1, 2020, that was not paid in 2019 (and therefore would have been required to be paid between January 1, 2020 and April 1, 2020).
TRANSITION RELIEF FOR PLAN ADMINISTRATORS
Notice 2020-51 provides that a distribution from a plan made during 2020 to a participant who attains age 70-½ in 2020 that would have been an RMD but for the changes made by the SECURE Act is not required to be treated as an eligible rollover distribution subject to mandatory withholding or the 402(f) notice requirement otherwise applicable to eligible rollover distributions. This transition relief is helpful to plan administrators and recordkeepers that characterized distributions as RMDs because they were unable to update their systems prior to the effective date of the RMD changes under the CARES Act.
ROLLOVER GUIDANCE FOR PLAN PARTICIPANTS
As explained by the IRS in the Notice, the legislative intent of the CARES Act was to permit plan participants to avoid taking RMDs in 2020. Notice 2020-51 provides that the following distributions from a retirement plan, other than a defined benefit plan, may be rolled over into an eligible retirement plan, even if the distribution normally would be treated as part of a series of substantially equal periodic payments:
- Distributions to a plan participant paid in 2020 (or paid in 2021 for the 2020 RMDs for an employee who has a required beginning date of April 1, 2020), if the payments (i) equal the amounts that would have been RMDs in or for 2020 but for the 2020 RMD waiver or (ii) are one or more payments (that include the 2020 RMDs) in a series of substantially equal periodic payments made at least annually for the life of the participant (or joint lives of participant and beneficiary), or for a period of at least 10 years; and
- For a plan participant with a required beginning date of April 1, 2021, distributions that are paid in 2021 that would have been an RMD for 2021 but for the 2020 RMD waiver.
EXTENSION OF 60-DAY DEADLINE FOR ROLLOVERS
To assist plan participants who have already received RMDs described above in 2020, the Notice extends the 60-day rollover period to August 31, 2020.
The Notice provides the following additional guidance on the 2020 RMD waiver:
- The 2020 RMD waiver does not change an individual’s required beginning date.
- Distributions from a plan may be rolled back into the same plan, if the plan permits rollovers and the rollover rules, as amended by the CARES Act, are met.
- If a plan permits a beneficiary to elect the 5-year life expectancy rule for calculating the RMD, the deadline for making the election is the end of the calendar year following the calendar year of the employee’s death. The Notice provides that the plan may be amended to extend the election deadline to the end of 2021. Similarly, for a non-spouse beneficiary of a participant who died in 2019, such beneficiary has until the end of 2021 to make a direct rollover and apply the life expectancy rule for RMDs.
- The 2020 RMD waiver does not apply to defined benefit plans, even if the defined benefit plan is using the defined contribution rule to determine the portion of a single sum distribution that is an RMD.
SAMPLE PLAN AMENDMENT
Notice 2020-51 includes a sample plan amendment for defined contribution plans that plan sponsors may adopt to implement the 2020 RMD waiver. The sample amendment provides participants a choice between receiving and not receiving the 2020 RMDs and offers employers different options regarding direct rollover choices. The Notice provides that the adoption of the same amendment (as modified, if necessary, to conform to the plan’s terms and administrative processes) will not result in the loss of reliance on a favorable opinion, advisory or determination letter.
Plans must be amended to reflect the 2020 RMD waiver by the last day of the plan year beginning on or after January 1, 2022 (January 1, 2024 for governmental plans) and must reflect the operation of the plan beginning with the effective date of the amendment.
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