Prepared By: Patricia K. Keesler

Benefits Law Group

Atlanta, Georgia

On January 12, 2001 the IRS issued new proposed regulations under Code section 401(a)(9). Section 401(a)(9) requires the annual distribution of a minimum amount to a participant (or IRA owner, in the case of an IRA) after the participant reaches the "required beginning date," generally the April 1 following the later of the year the participant attains age 70½ or retires. For 5% owners, the required beginning date is the April 1 following the year the participant attains age 701/2. Proposed regulations were issued in 1987, but they were never finalized. The proposed regulations were criticized as being too rigid and complex. The new proposed regulations affect distributions after retirement, death and attainment of age 70 1/2 for qualified retirement plans, IRAs, section 457 plans, section 403(b) annuity contracts, custodial accounts, and retirement income accounts.

In general, the new proposed regulations simplify the calculation of minimum required distributions, in many cases resulting in lower minimum distribution amounts. In addition, the new proposed regulations affect the date for determining the designated beneficiary. The new rules provide that an employee’s designated beneficiary is determined as of the end of the year following the year of the employee’s death, later than under the old rules. This means that most minimum distribution amounts made during the employee’s life will be calculated without regard to the employee’s beneficiary. Plan administrators will use the old MDIB tables for calculating most lifetime minimum distributions. However, if the employee’s sole beneficiary is the spouse and the spouse is more then 10 years younger than the employee, the plan may use a longer distribution period measured by actual life expectancies.

Generally, the regulations are proposed to be effective for distributions made for calendar years beginning on or after January 1, 2002. However, employers may elect to use the new proposed regulations in calculating minimum distributions for the 2001 calendar year, but NOT required distributions made in the 2001 calendar year. The new proposed regulations cannot be used to calculate distributions required to be made by April 1, 2001 for the calendar year 2000 (e.g., a distribution to a retired participant who attained age 70-1/2 in 2000).

A model amendment is included in the proposed regulations. This model must be adopted to rely on the regulations for 2001 distributions. The entire model amendment, as revised, reads as follows:

"With respect to distributions under the Plan made for calendar years beginning on or after January 1, 2001 (ALTERNATIVELY, SPECIFY A LATER CALENDAR YEAR FOR WHICH THE AMENDMENT IS TO BE INITIALLY EFFECTIVE), the Plan will apply the minimum distribution requirements of section 401(a)(9) of the Internal Revenue Code in accordance with the regulations under section 401(a)(9) that were proposed on January 17, 2001, notwithstanding any provision of the Plan to the contrary. This amendment shall continue in effect until the end of the last calendar year beginning before the effective date of final regulations under section 401(a)(9) or such other date as may be specified in guidance published by the Internal Revenue Service."