The Treasury also issued a new proposed rule addressing additional changes made by the SECURE 2.0 Act. Comments on that rule are due by September 17, 2024.

Background

The Internal Revenue Code requires participants and their beneficiaries to commence distributions by a specified age (or, if the plan chooses, separation from service if later). The 2019 SECURE Act and later the SECURE 2.0 Act changed these RMD rules. In addition to allowing plans to permit participants to delay starting RMDs until a later age, the SECURE Act tightened the rules governing distributions to beneficiaries in DC plans. Under the new DC beneficiary rules, only spouses and certain other specified beneficiaries (“eligible designated beneficiaries”) can receive their RMDs over their life expectancies. Those who could not take life expectancy payments are given 10 years (an increase from prior law’s five years) to receive distributions.

The Treasury issued proposed rules on the SECURE Act on February 24, 2022, which we discussed in our March 1, 2022 insight, “IRS Proposes Rule on Required Minimum Distribution Changes.” The SECURE 2.0 Act, which was enacted on December 29, 2022, made further changes to the RMD requirements.

The final rule

Most of the comments on the original proposed rule were technical in nature and the final rule issued on July 19, 2024 clarifies many of these. The only truly controversial issue was the timing rules for non-spouse beneficiaries of participants in DC plans who die after they had started their RMDs to take distributions each year (for 10 years) following the participant’s death. This rule was criticized by those who thought that the SECURE Act allowed such beneficiaries to wait until the tenth year following the participant’s death to take the full required distribution.

Treasury read the statute as requiring, and proposed a rule that requires, continuous RMDs paid to the non-spouse beneficiary when the participant had started taking RMDs before dying. The final rule adopts the proposed rule interpretation.

While the proposed rule was pending, the Treasury announced that beneficiaries would not be treated as violating the RMD rules simply because they did not take annual distributions (i.e., follow the non-proposed position). (See our April 26, 2024 insight, “IRS Provides Relief for Certain 2024 RMDs.”) The final rule provides that those who did not take annual distributions and qualified for the relief do not have to now take a lump sum reflecting the missed distributions. The final rule still counts the 10 years from the participant’s death but only requires that minimum distributions be spread over the remaining years.

The proposed rule

Most issues addressed in the new proposed rule, which was also issued on July 19, 2024, are not controversial.

Although that rule is not yet final, following it is considered a good-faith interpretation of the statute by plan sponsors and participants.

Action item

Sponsors of most single-employer plans have until December 31, 2026 to amend their plans to reflect the new rules. Sponsors of multiemployer plans and other collectively bargained plans have until December 31, 2028. The amendment date for governmental plans is either December 31, 2028 or December 31, 2029 depending on the type of plan.

However, plans have had to operate in accordance with a reasonable interpretation of the statutes since their enactments. Plan sponsors and trustees may want to review their operational compliance to see whether changes are needed now that the final rule is effective as of January 1, 2025.