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IRS Releases Proposed RMD Rule IRS Releases Proposed RMD Rule

IRS Releases Proposed RMD Rule

On February 24, 2022, the Internal Revenue Service (IRS) issued the long-awaited proposed rule ("Proposed Rule"), which addressed, in large part, the changes to required minimum distribution ("RMD") rules made by the Setting Every Community Up for Retirement Enhancement Act of 2019 ("SECURE Act"). 

The Proposed Rule affects qualified 401(a) plans, 403(b) plans, governmental 457(b) plans, and IRAs. It updates regulations under Sections 401(a)(9), 402(c), 403(b), 457, 408, and 4974 of the Internal Revenue Code ("Code"), to replace the existing question-and-answer format and, in addition to changes made by the SECURE Act, to reflect other statutory amendments made since the RMD regulations were last issued in 2002. 

The Proposed Rule applies beginning January 1, 2022. The existing regulations will apply to the 2021 calendar year, but in applying them, taxpayers must take into account a reasonable, good faith interpretation of the SECURE Act's changes. Compliance with the Proposed Rule for 2021 will satisfy the reasonable, good faith standard. Since RMDs were suspended for 2020, relief is not required for that year. 


The SECURE Act became law on December 20, 2019, and made two major changes to the RMD rules:
  • For any employee born on or after July 1, 1949, the required beginning date ("RBD") for RMDs was increased from age 70½ to age 72. This change was effective for all retirement plans and IRAs on January 1, 2020.
  • Effective for employees who die after December 31, 2019 (or after December 31, 2021, for governmental plans and collectively bargained plans), if the employee dies before distribution of their entire interest in the plan and has designated beneficiaries who are not "eligible designated beneficiaries," then full distribution must be made within 10 years (not 5 years) of the employee's death and the life expectancy rules are no longer available. This change was effective for most retirement plans and IRAs on January 1, 2020, and for governmental plans and collectively bargained plans on January 1, 2022.

10-Year Rule for Designated Beneficiaries in a DC Plan/IRA

The Proposed Rule keeps the rule that allows an employee's interest to be distributed over the designated beneficiary’s life or life expectancy. However, in the case of a defined contribution plan, that rule is available only if the designated beneficiary is an "eligible designated beneficiary." 

The SECURE Act defined both terms, and the Proposed Rule adopts those definitions.
A "designated beneficiary" means any individual designated as a beneficiary by the employee.

An "eligible designated beneficiary" means a designated beneficiary of an employee that, on the date of the employee's death, is:

   •  their surviving spouse;
   •  their child who has not reached the age of majority;
   •  disabled;
   •  chronically ill; or
   •  not more than 10 years younger than the employee.

The Proposed Rule provides that an eligible designated beneficiary also includes a beneficiary of an employee who dies before January 1, 2020. However, if an eligible designated beneficiary dies on or after January 1, 2020, the successor beneficiary will be treated as a designated beneficiary.

The Proposed Rule sets forth rules for identifying designated beneficiaries and eligible designated beneficiaries, including:

  • A beneficiary does not need to be specified by name to be the designated beneficiary, as long as they are identifiable from the designation (e.g., children in equal shares).
  • Rights under a will or state law do not make a person a designated beneficiary.
  • The “age of majority” is generally age 21, with a special rule for defined benefit plans.
  • Default designations in a plan can create a designated beneficiary.
  • A designated beneficiary must be an individual (e.g., not an estate). Generally, if a non-individual is designated, there is no designated beneficiary, even if individuals are also designated (except for see-through trusts). The RMD rules have not changed for non-individual beneficiaries.
  • If there are multiple designated beneficiaries and at least one of them is not an eligible designated beneficiary, the employee is treated as having no eligible designated beneficiary (unless any designated beneficiary is an eligible designated beneficiary due to being a child or, in certain cases, for disabled or chronically ill eligible designated beneficiaries).
  • An individual who has not attained age 18 is disabled if, as of the date of the employee's death, the individual has a medically determinable physical or mental impairment that results in marked and severe functional limitations and that can be expected to result in death or to be of long-continued and indefinite duration.
  • An individual determined by the Social Security Administration to be disabled is deemed to be disabled for purposes of the Proposed Rule.

It is important to note that the separate account rules for beneficiaries under the existing regulations still apply. If these rules are met, each beneficiary is treated as the sole beneficiary of the employee’s account and the rules relating to the treatment of multiple beneficiaries outlined above will not apply.

Special Rules for Trusts

The Proposed Rule provides significant additional guidance on trusts as beneficiaries. It keeps the see-through trust concepts from the existing regulations under which certain beneficiaries of a see-through trust are treated as beneficiaries of the employee. The Proposed Rule also adds guidance for determining which beneficiaries of a see-through trust are treated as beneficiaries of the employee, including many more sample fact patterns than under existing regulations. The IRS' stated intention in providing this guidance is to minimize the need for taxpayers to request private letter rulings.

Distributions after the Employee's Death

For defined contribution plans and IRAs, the RMD rules that apply at the death of an employee will depend on whether the employee has reached the employee's RBD and whether the employee's beneficiary is a designated beneficiary, eligible designated beneficiary, or non-individual beneficiary. 

If an employee dies before their RBD:

  • An eligible designated beneficiary will receive distributions over their lifetime. A plan can instead provide that distributions will be made under the 10-year rule. Alternatively, a plan can permit an eligible designated beneficiary to elect to receive distributions either over their lifetime or under the 10-year rule, and specify a default rule if a timely election is not made. 
  • A designated beneficiary must receive a full distribution under the 10-year rule.
  • A non-individual beneficiary must still receive a full distribution under the 5-year rule.

If an employee dies after their RBD, then:

  • An eligible designated beneficiary must receive benefits at least as rapidly as they were being paid to the employee. 
  • A designated beneficiary must receive a full distribution under the 10-year rule. In an unexpected twist, however, the designated beneficiary must also take annual distributions under the life expectancy rule until the account is fully distributed under the 10-year rule.  
  • A non-individual beneficiary must still receive a full distribution under the life expectancy rule.

The Proposed Rule additionally provides that a full distribution from the plan must be made by the earliest of the following dates:

  • The end of the tenth calendar year following the calendar year in which an eligible designated beneficiary dies. If the eligible designated beneficiary is receiving benefits over their life expectancy at death, their beneficiary must also take distributions under the life expectancy rule until the account is fully distributed under the 10-year rule.
  • If the eligible designated beneficiary is the child of the employee who has not yet reached the age of majority as of the employee's death, the end of the tenth calendar year following the calendar year in which the child reaches the age of majority.
  • The end of the calendar year in which the applicable denominator would have been less than or equal to one if it were determined using the eligible designated beneficiary's remaining life expectancy, if the appliable denominator is determined using the employee's remaining life expectancy.

The Proposed Rule also adds a modified version of the general rule that applies if an employee has multiple designated beneficiaries. Rather than determining the applicable denominator using the designated beneficiary with the shortest life expectancy, the Proposed Rule uses the life expectancy of the oldest designated beneficiary.

RMDs from Defined Benefit Plans

The Proposed Rule did not make significant changes to defined benefit plan RMD requirements.

For employees who retire after attainment of age 70½, the SECURE Act did not change the requirement that benefits be actuarially increased to take into account the period after age 70½ in which the employee was not receiving any benefits under the plan. In other words, the SECURE Act did not change the age of this actuarial adjustment from age 70 ½ to age 72. In addition, the Proposed Rule confirms that the required actuarial adjustment does not apply to a 5-percent owner, and, as under the existing regulations, does not apply to governmental and church plans. 

Other changes under the Proposed Rule that apply to defined benefit plans include:

  • An exception to the 5-year rule was added so that a plan will not fail to comply merely because payments by the plan are restricted by Section 436(d) (which requires limitations on accelerated benefit distributions).
  • Additional circumstances under which annuity payments under a defined benefit plan may increase were added by the Proposed Rule, including as a result of benefits suspended for a retiree on account of reemployment, and for an insolvent plan or for a participant or beneficiary of a plan in critical and declining status whose benefits have been suspended in some circumstances.
  • While the age of majority under the Proposed Rule is generally age 21, a defined benefit plan may have a different age of age of majority definition if adopted prior to February 24, 2022. 


The Proposed Rule makes clear that if an employee dies before their RBD, any distribution made during the year of the employee's death is an eligible rollover distribution. Moreover, if the 5- or 10-year rule applies, any distribution made prior to the fifth or tenth year is an eligible rollover distribution. Any amount distributed in the fifth or tenth year, however, is considered a RMD. 

If the participant dies after their RBD or the life expectancy rules apply, then the distributions made under the life expectancy rule are not eligible for rollover. This includes distributions made during the year that an employee dies, if the RMD was not made prior to the employee's death.

403(b) and 457(b) Plan Changes

The Proposed Rule amends the regulations for 403(b) plans and 457(b) plans to generally conform to the SECURE Act changes that apply to qualified plans. One exception is recognition that the SECURE Act's exception from the 10-year rule for existing qualified annuity contracts applies in the case of a 403(b)(9) retirement income account even if a commercial annuity is not used.

Importantly, the preamble to the Proposed Rule states that the IRS is considering additional changes to the RMD rules for Section 403(b) plans so the rules more closely follow those for qualified plans. For example, the IRS has invited comments on a potential change that would require each 403(b) plan to force a required minimum distribution as is currently required for qualified plans and 457(b) plans. This would be a significant change and may pose significant practical challenges for many 403(b) plan sponsors.

Action Steps

The Proposed Rules introduce significant complexity to the already complex RMD rules. Plan sponsors should consider how these changes will impact their plan administration, procedures and processes, documentation, and employee communications. While plan documents, summary plan documents, and administrative practice will generally need to be reviewed and amended to address the changes by December 31, 2022 (December 31, 2024 for governmental plans), plans must be administered in accordance with the Proposed Rules now (and for 2021 must be administered in good faith compliance with the SECURE Act and existing regulations). 

Comments on the proposed rule are due by May 25, 2022 and a public hearing is scheduled for June 15, 2022. 

For additional information, please contact Gary Blachman, Kathleen Sheil Scheidt, Tara Sciscoe, Chris Sears, Melissa Proffitt, Rob Gauss, Audra Ferguson-Allen, Austin Anderson, or the Ice Miller Workplace Solutions attorney with whom you regularly work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.

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