The Internal Revenue Service (“IRS”) has published Notice 2020-51 (“Notice”) providing much needed guidance on the waiver of required minimum distributions (“RMDs”) for defined contribution plans under the CARES Act. The Notice is modeled after guidance issued under the Worker, Retiree, and Employer Recovery Act of 2008 ("WRERA"), which was in response to the 2008 financial recession.

Rollover Relief

The following distributions from defined contribution plans may be rolled over provided the rollover rules are satisfied:

  • distributions to a plan participant paid in 2020 (or paid in 2021 for the 2020 calendar year in the case of an employee who has a required beginning date (“RBD”) of April 1, 2021) if the payments (1) equal the amounts that would have been RMDs in or for 2020, but for the CARES Act 2020 RMDs waiver, or (2) are one or more payments (that include the 2020 RMDs) in a series of substantially equal periodic payments made at least annually and expected to last for the life (or life expectancy) of the participant, the joint lives (or joint life expectancies) of the participant and the participant’s designated beneficiary, or for a period of at least 10 years; and
  • for a participant with a RBD of April 1, 2021, distributions that are paid in 2021 that would have been an RMD for 2021 but for section 2203 of the CARES Act.

In addition, the Notice provides that participants who received a distribution described above in 2020 have until August 31, 2020 to utilize the 60-day indirect rollover period.

Important Q&A information

The Notice also provided guidance through a Q&A Section. Some highlights of the guidance in the Q&A are:

  • If a plan permits an employee or beneficiary to elect whether the 5-year rule or the life expectancy rule applies in determining RMDs in 2020, then the deadline for making that election is extended to 2021.
  • Distributions can be rolled over back into the same plan as long as the plan permits rollovers and satisfies the rollover requirements.
  • Plans subject to the spousal consent rules, can elect not to provide for a new annuity starting date, causing a waiver of the spousal consent requirements.
  • The 2020 RMD waiver does not apply to substantially equal periodic payments under the “RMD method”, suspension of these payments may cause the 10% tax under Section 72(t) to apply.
  • The waiver of 2020 RMDs does not change an individual’s RBD.
  • A 2020 RMD is not treated as an eligible rollover distribution, so the mandatory 20% withholding does not apply. Rather, the amount is subject to voluntary withholding, unless directly rolled over.

Keep in mind that plan sponsors have until the last day of the 2022 plan year (2024 plan year for governmental plans) to adopt these changes through an amendment. The Notice provides a model amendment that offers different options regarding direct rollover and default distribution rules.

If you have any questions regarding the relief, please contact your Nyhart consultant for more information.