Late last year, President Bush signed the Worker, Retiree, and Employer Recovery Act (“WRERA”) which in part authorizes the waiver of 2009 required minimum distributions (“RMDs”) from retirement plans that contain individual accounts, including 401(k), 403(a), 403(b), 457 plans and individual retirement accounts (“IRAs”). The waiver does not apply to defined benefit plans. In addition, WRERA does not waive any 2008 RMDs even for eligible individuals who chose to delay taking their initial 2008 RMD until April 1, 2009, nor does it waive any 2010 RMDs.
This legislation is good news for individuals who have or will have attained age 70½ in 2009 and would otherwise be forced to take a taxable distribution from their qualifying retirement accounts as a required minimum distribution because the suspension of RMDs for 2009 gives participants an opportunity to postpone selling their investments and possibly recover some of the value lost as a result of the current stock market and economic crises. While not required to, participants may take a required distribution this year. Qualifying participants will not be required to take an RMD payment until December 31, 2010. Those plan participants who do not attain the age of 70½ until the year 2010 will still be eligible to defer their first RMD payment until April 1, 2011. In general, RMD amounts are not eligible for a rollover distribution but because of this 2009 waiver, amounts that would be included in a participant’s RMD for 2009 are eligible for a rollover to another eligible retirement plan.
WRERA does not contain any affirmative notice requirements for plan administrators. However, it would be prudent for plan administrators to advise qualifying plan participants of their options given the varying tax consequences carried by a plan participant’s election to take a payment this year. Some participants may choose to take the distribution as taxable income, some may choose to roll over eligible distributions into qualifying accounts to avoid the taxable income and others may choose not to take a withdrawal. Amendments to add RMD waiver language to the plan must be executed by December 31, 2011 (governmental plans have until December 31, 2012).