Employers may provide option to postpone minimum distributions.

• Author: Josephs, Stuart R.

IRS Ann. 97-24 provides that an employer is not precluded from offering to employees (other than 5% owners), who attain age 70k after 1995 and have not retired, an option to defer commencement of benefit distributions under a qualified plan merely because the plan has not yet been amended to provide for this option.

Background

Section 1404(a) of the Small Business Job Protection Act of 1996 (SBJPA) amended Sec. 401(a)(9) to provide that, for employees who are not 5% owners, the required beginning date for minimum distributions from a qualified plan is April 1 of the calendar year following the later of the calendar year in which the employee attains age 70X or the calendar year in which the employee retires. This amendment applies to years beginning after 1996.

However, the amendment does not change the required beginning date for distributions from an individual retirement account (IRA), including an IRA established with a simplified employee pension or savings investment match plan for employees. (See Notice 96-67.) Thus, distributions from these plans must begin by April 1 of the calendar year following the calendar year in which the employee attains age 70k, even though the employee (or IRA participant) has not retired.

Notice 96-67, Q&A-2, provides that, under Sec. 401 (a) (9) (as amended by the SBJPA), an employee (other than a 5% owner) who attained age 70 1/2 in 1996, but who had not retired from employment with the employer maintaining the plan by the end of 1996, was not required to receive a minimum distribution by Apr. 1, 1997.

Many qualified plans continue to contain provisions (consistent with Sec. 401(a)(9) before its amendment) requiring an employee who attains age 70 1/2 in a calendar year to begin receiving distributions by April 1 of the following calendar year. Some employers wish to give employees (other than 5% owners) who have not retired the option to defer commencement of distributions beyond April 1 following the calendar year in which the employees attain age 70 1/2 and have requested guidance as to whether such an option may be offered before their plans are amended to provide for this option.

Ann. 97-24 addresses the addition of an option to defer commencement of distributions before plan amendment. It does not address the elimination of the option to receive in-service distributions after age 7 1/2.

Under Notice 96-67, an amendment that eliminates the right to receive a distribution before retirement after age...