Treasury, IRS Finalize Defined Benefit Plan & Annuity Distribution Rules

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Today, Treasury and the IRS finalized regulations regarding minimum distribution rules for defined benefit plans and annuity products purchased with account balances in other types of qualified retirement plans and IRAs. This completes the comprehensive update and simplification of the minimum distribution rules that began in 2000. The regulations finalized today were originally issued as proposed and temporary regulations in 2002.

"This is great news for participants, employers and annuity providers because they now have final rules regarding required distributions from their retirement programs," stated Gregory Jenner, Acting Assistant Secretary for Tax Policy. "There is adequate flexibility in the rules to permit annuities that meet the different needs of retirees. The final rules reflect many of the comments we received from the public during the finalization process."

While the final regulations retain many rules from the temporary regulations, there are numerous modifications. For example, changes are included to address concerns of defined benefit plan sponsors and annuity issuers to provide more flexibility in annuity payment terms. The regulations also generally grandfather governmental plan provisions that were in effect when the temporary regulations were published. These regulations also include a modification to the defined contribution plan rules that will provide more flexibility in the establishment of separate accounts for beneficiaries following the death of a plan participant or IRA holder.

The final regulations are effective January 1, 2003, the same date used for the regulations applicable to defined contribution plans. However, until 2006, plans are only required to show that they exercised good faith in complying with a reasonable interpretation of section 401(a)(9).

Most employers and annuity contract issuers will not need to adjust their plan or contract distribution options to comply with the regulations. For those plans or contracts that do need to be changed, the good faith compliance period will allow sufficient time to do so.

REPORTS: The text of the final regulations (


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