On June 23, 2020, the Internal Revenue Services (“IRS”) issued Notice 2020-51 (the “Notice”) providing guidance in relation to the waiver of required minimum distributions (“RMDs”) from defined contribution plans and IRAs in 2020 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
RMD Amounts Eligible for Rollover. The CARES Act permits defined contribution plans and IRAs to waive RMDs for 2020. The Notice provides that an individual receiving a distribution from a plan that otherwise would have been treated as an RMD in (or for) 2020 but for the CARES Act (including distributions paid in 2020 that are attributable to 2019 RMDs and distributions paid in 2021 that are attributable to 2020 RMDs) may roll the distribution into an eligible retirement plan, including the plan from which the distribution was received, provided the rollover rules are met.
Rollover Deadline Extended to August 31, 2020. Normally, participants have 60 days following the receipt of an eligible rollover distribution to rollover the distribution into an eligible retirement plan. The IRS previously extended the 60-day deadline to elect a roll over until July 15, 2020 for distributions made between February 1, 2020 and May 15, 2020. This meant that participants who received an RMD prior to February 1, 2020 could not roll over the distribution under the CARES Act. The Notice addresses this issue by extending the 60-day rollover deadline to August 31, 2020 for all distributions received in 2020 that would have otherwise been an RMD but for the CARES Act. The Notice notes that this relief also applies to distributions that would have been treated as an RMD in 2020 but for the Setting Every Community Up for Retirement Enhancement Act of 2019 (“SECURE Act”) (which increases the age for determining a participant’s required beginning date from age 70½ to age 72 for participants who reach age 70½ after December 31, 2019).
Additional Technical Issues Addressed. The IRS also addresses a number of technical issues in the Notice, including:
- The waiver of 2020 RMDs does not impact a participant’s required beginning date;
- If a plan permits an employee or beneficiary to elect whether the 5-year or life expectancy rule for calculating RMD amounts applies, and the election was due in 2020, the deadline to make the election may be extended by the plan until the end of 2021;
- In the case of a distribution to a non-spouse designated beneficiary that is made prior to the end of the year following the year of the participant’s death, the deadline for making a direct rollover of such distribution is extended from the end of 2020 to the end of 2021 if the participant’s death occurred in 2019; and
- Distributions from a plan may be rolled back into the same plan if the plan permits rollovers and the rollover rules are otherwise met.
Sample Defined Contribution Plan Amendment. Although plans have until the last day of the first plan year beginning on or after January 1, 2022 (January 1, 2024 for governmental plans) to adopt a plan amendment pursuant to the CARES Act, the Notice provides a sample amendment for defined contribution plan sponsors that implements the RMD waiver under the CARES Act. Plans are not required to adopt the sample amendment. However, the IRS cautions that anti-cutback relief will not apply if a plan does not follow the sample amendment and adopts a plan amendment that eliminates an optional form of benefit. For example, if the plan adopts an amendment automatically suspending distribution of 2020 RMDs, then an amendment to eliminate the right to defer the distribution would be considered an impermissible cutback.
Please contact Slevin & Hart for more information about how the CARES Act and recent guidance may affect your retirement plan.
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