Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has issued proposed regulations under Code Sec. 401(a)(9) and
Code Sec. 403(b) to permit a governmental plan to comply with the required minimum distribution (RMD) rules by using a reasonable and good-faith interpretation of Code Sec. 401(a)(9). Written or electronic comments and requests for a public hearing must be received by October 8, 2008.

Background

 
Code Sec. 401(a)(9) imposes RMD rules on qualified retirement plans. These rules are also applicable to IRAs, Code Sec. 403(b) plans, and Code Sec. 457(b) plans. Distributions from governmental plans are subject to the same Code Sec. 401(a)(9) RMD rules as plans sponsored by private employers. In 2004, the IRS issued Reg. §1.401(a)(9)-1 to Reg. §1.401(a)(9)-9, which outlined RMD rules applicable to both private and governmental plans, although with a transition relief period under which governmental plans could be operated under a reasonable, good-faith standard in recognition of the fact that such plans would have to be amended by a legislature.

Pension Protection Act

  Because governmental plans can be more difficult to amend than other qualified plans, and because they may be constrained by state statutes or constitutions, Congress, in the Pension Protection Act of 2006 (P.L. 109-280), instructed the Secretary of the Treasury to issue regulations under which, for all years to which Code Sec. 401(a)(9) applies, a governmental plan is to be treated as having complied with
Code Sec. 401(a)(9) if the plan complies with a reasonable, good-faith interpretation of that provision. This provision in effect protects governmental plans from ever having to be subject to anything other than a reasonable, good-faith interpretation of Code Sec. 401(a)(9).

Flexibility

  The IRS has proposed changes to the RMD regulations to comply with the congressional mandate. The proposed amendments expressly allow governmental plans to operate under a reasonable, good-faith interpretation of the RMD rules under Code Sec. 401(a)(9). The change gives plans more flexibility to comply with the RMD rules and allows them to take into account state laws permitting certain distribution options, as well as administrative issues associated with these rules.

Proposed Regulations, NPRM REG-142040-07, 2008FED ¶49,817

Other References:

 
Code Sec. 401

  CCH Reference - 2008FED ¶17,724BC

  CCH Reference - 2008FED ¶17,725JE

 
Code Sec. 403

  CCH Reference - 2008FED ¶18,278JC

  Tax Research Consultant

  CCH Reference - TRC RETIRE: 42,170
CCH Reference - TRC RETIRE: 69,254