Background: The SECURE Act

The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) made changes to the minimum distribution requirements for DC plans. These changes apply to beneficiaries of participants who die after December 31, 2019 and to beneficiaries, who die after the effective date, of participants who died before the effective date. There are delayed effective dates with respect to collectively bargained and governmental plans.

Key changes include elimination of the distinction between the rules for participants who died before and those who died after their required beginning date (RBD) and changing the five-year period for beneficiaries to take the distribution (if they were not taking the benefit over their life expectancy) to 10 years.

The proposed regulation

The IRS issued the proposed regulations on February 24, 2022. For a summary see our March 1, 2022 insight. The proposal provided that, when finalized, the regulations would apply beginning with the 2022 distribution calendar year. Before 2022, a good-faith interpretation of the SECURE Act would apply.

The proposed regulation interpreted the 10-year rule in a different manner than the IRS had interpreted the five-year rule that the 10-year rule would replace. Under the five-year rule, no distributions were required until the fifth year. Under the 10-year rule, in the case of a participant who died after their required beginning date, the beneficiary would be required to take a minimum distribution in each of the 10 years, starting with year one.

This regulatory position not only surprised those who had to make and take minimum distributions but, for some, came after a 2021 distribution should have been taken pursuant to the proposed regulation.

The relief for 2021 and 2022

On October 7, 2022, the IRS issued Notice 2022-53, which states:

• No final regulation will be effective before at least 2023.
• No excise tax will be imposed (and no plan will be treated as violating the qualification rules) merely for not making a distribution under the 10-year rule in 2021 or 2022.

The 10-year relief provision applies to a:

• Designated beneficiary of a participant if the participant (i) died in 2020 or 2021 on or after the participant’s RBD and (ii) the designated beneficiary does not take lifetime or life expectancy payments
• Beneficiary of an eligible designated beneficiary (as defined by the SECURE Act) if the eligible designated beneficiary died in 2020 or 2021 and was taking lifetime or life expectancy payments

Why this guidance is good news

This is a welcome relief provision that eliminates the retroactive creation of violations of the RMD rules. No action is necessary to take advantage of the relief.