It won’t be long and April 1st will already be upon us. One requirement for ESOPs and other qualified retirements plans is to distribute Required Minimum Distributions (RMDs) to eligible plan participants.
The IRS requires payments to participants by their “required beginning date” (RBD) under IRC Section 401(a)(9). A minimum payment must be made to the participant as of the RBD, and for each calendar year thereafter. The participant is not able to delay distribution beyond the required beginning date (RBD).
For a participant who is not a 5% owner, the RBD is defined as April 1 following the end of the calendar year in which the later of two events occurs: (1) the participant reaches age 70½, or (2) the participant retires. For a participant who is a 5% owner, the RBD is April 1 following the close of the calendar year in which he attains age 70½, regardless of whether he retires by the end of that year.
Your TPA should be advising your RMDs due in April, along with the distribution amount based on the life expectancy tables used in your ESOP plan document. There is a stiff 50% penalty imposed on the participant for failure to take the RMD, so this is one plan requirement you really need to monitor!
For more information and calculators on RMDs, please visit our 2011 ESOP Required Minimum Distributions blog.