IRS ISSUES GUIDANCE ON MINIMUM DISTRIBUTION REQUIREMENTS.

Rev. Proc. 92-10

SECTION 1. PURPOSE

The purpose of this revenue procedure is (1) to provide guidance, within the context of proposed regulations, relating to the minimum distribution requirements of section 401(a)(9) of the Internal Revenue Code and the related 50-percent excise tax imposed by section 4974 where an individual's distribution from a plan or arrangement has been affected because assets are invested in a contract issued by an insurance company (as defined in section 816(a) of the Code) in state insurer delinquency proceedings and (2) to provide guidance relating to certain qualification issues where a plan or arrangement does not make certain distributions in this situation.

SEC. 2. BACKGROUND

01 Section 401(a)(9) of the Code generally provides that a trust shall not constitute a qualified trust under section 401(a) unless the plan provides that the entire interest of each individual will be distributed beginning not later than the required beginning date over the life of such individual or the lives of the individual and a designated beneficiary (or over a period not extending beyond the individual's life expectancy or the life expectancy of such individual and a designated beneficiary).

02 Section 401(a)(9) of the Code also applies to qualified annuity plans described in section 403(a). Annuity contracts described in section 403(b) (section 403(b) contracts), individual retirement arrangements described in section 408(a) and (b) (IRAs), and eligible deferred compensation plans described in section 457(b) are subject to comparable minimum distribution requirements.

03 Under the minimum distribution requirements, an individual is required to begin receiving minimum distributions for the year that the individual attains age 70 1/2, by the following April 1st. For each year thereafter, the minimum distribution must be made by the last day of that year. Section 401(a)(9) of the Code also requires beneficiaries of an individual to receive minimum distributions after the death of the individual.

04 Generally, the minimum required distribution is either a permissible annuity distribution option (See section 1.401(a)(9)-1, F-3 of the proposed Income Tax Regulations and section 54.4974-2, Q&A-4 of the proposed Excise Tax Regulations) or an amount determined by reference to the value of the individual's account divided by either the individual's applicable life expectancy or the applicable incidental benefit divisor (See section 1.401(a)(9)-1, F-1 and F-4A, and section 1.401(a)(9)-2, Q&A-4 and Q&A-7 of the proposed Income Tax Regulations and section 54.4974-2, Q&A-3 of the proposed Excise Tax Regulations).

05 Individuals required to receive distributions from qualified trusts and annuity plans, section 403(b) contracts, IRAs, and eligible deferred compensation plans described in section 457(b), including individuals to whom annuity contracts have been distributed, are subject to the 50-percent excise tax imposed by section 4974 of the Code to the extent that actual distributions are less than the required minimum distribution under section 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), or 457(d).

06 Section 401(a)(14) of the Code provides, generally, that unless a participant elects otherwise, a qualified plan must begin paying benefits to a plan participant no later than the 60th day after the latest of the close of the plan year in which (1) the participant attains the earlier of age 65 or the plan's normal retirement age, (2) the participant has 10 years of participation in the plan, or (3) the participant terminates service with the employer.

07 Section 411(d)(6) of the Code provides that a plan shall not be treated as a qualified plan if the accrued benefit of a participant is decreased by an amendment of the plan other than an amendment described in section 412(c)(8), or section 4281 of the Employee Retirement Income Security Act of 1974. Further, for purposes of this provision, a plan amendment which has the effect of (i) eliminating or reducing an early retirement benefit or a retirement-type subsidy, or (ii) eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment shall be treated as reducing accrued benefits.

SEC. 3. APPLICABILITY AND SCOPE

01 If an insurance company is in state insurer delinquency proceedings, a plan or arrangement that invested assets in an annuity contract or a guaranteed investment contract (GIC) issued by that insurance company may be unable to make distributions because the distributions or payments from those contracts have been reduced or suspended by reason of the state proceeding. Similarly, individuals who hold annuity contracts issued by such an insurance company in connection with a plan or arrangement may be unable to receive sufficient distributions because annuity payments have been reduced or suspended by reason of the state proceeding.

02 If the conditions of Sec. 4 of this revenue procedure and the requirements of Sec. 5 of this revenue procedure are satisfied:

(1) Sections 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), and 457(d)(2) of the Code will not be treated as violated (and thus the 50-percent excise tax under section 4974 of the Code will not apply) solely because any portion of an individual's accrued benefit is not distributed; and

(2) The requirements of sections 401(a)(14) and 411(d)(6) of the Code will not be treated as violated solely because any portion of a participant's accrued benefit is not distributed.

SEC. 4. CONDITIONS

01 In order for a plan or arrangement (including a plan that has distributed an annuity contract) or a payee under a plan or arrangement to qualify for the treatment described in Sec. 3 of this revenue procedure, the assets of the plan or arrangement must include an Affected Investment.

02 Similarly, in order for a plan or arrangement to qualify for the treatment described in Sec. 3.02(l) of this revenue procedure, the amount of the required minimum distribution must be determined in accordance with the provisions of Part F of section 1.401(a)(9)-1 of the proposed Income Tax Regulations (and, if applicable, section 1.403(b)-2 of the proposed Income Tax Regulations or section 1.408-8 of the proposed Income Tax Regulations) and be calculated by taking into account the Affected Investment where the proposed regulations require that assets be taken into account in calculating the required minimum distribution.

03 The term "Affected Investment" means an annuity contract or a guaranteed investment contract for which payments under the terms of the contract have been reduced or suspended as a result of state insurer delinquency proceedings with respect to an insurance company within the meaning of section 816(a) of the Code. The unavailable portion of the Affected Investment means the amount by which payments have been reduced or suspended as a result of state insurer delinquency proceedings with respect to an insurance company within the meaning of section 816(a) of the Code.

SEC. 5. REQUIREMENTS

01 In the case of a defined contribution plan or any plan or arrangement with individual accounts, all assets of the account other than the unavailable portion of the Affected Investment must be utilized (and exhausted, if necessary) to make distributions from the plan or arrangement. Thus, to the extent that any part of the account balance is allocable to an asset other than the unavailable portion of an Affected Investment, the distribution to a payee must be satisfied from that part until there are no other assets allocable to the account balance other than the unavailable portion of an Affected Investment.

02 In the case of a plan or arrangement that does not provide for individual accounts, all assets must be utilized other than the unavailable portion of the Affected Investment (and exhausted, if necessary) to make distributions from that plan or arrangement, unless an annuity contract that is an Affected Investment has been purchased under the plan or arrangement (including an annuity contract that has been distributed) to provide an individual's entire benefit. In that case, distributions to the payee from the plan or arrangement are required to be made only from the available portion of the Affected Investment.

03 All similarly situated individuals must receive comparable treatment with respect to distributions.

04 If the reduction or suspension of payments under an Affected Invested ceases in whole or in part, the amount of any shortfall in a prior distribution must be made up to the extent that additional payments are received with respect to the Affected Investment. The make-up of the shortfall must occur no later than December 31st of the calendar year following the year in which the additional payments are received with respect to an Affected Investment. The determination of the amount and the method of making up the shortfall may be done on any reasonable basis. For example, for purposes of the requirements of section 401(a)(9), the shortfall may be made up in the same manner that a plan may make up shortfalls because of additional vesting, treating the Affected Investment as an additional vested portion in the year following the year in which the amount (or portion thereof) is no longer an Affected Investment. See section 1.401(a)(9)-1, F-6 of the proposed Income Tax Regulations.

SEC. 6. EFFECTIVE DATE

This revenue procedure is effective with respect to distributions that relate to the 1991 and later calendar years.

DRAFTING INFORMATION

The principal author of this revenue procedure is Michael Rubin of the Employee Plans Technical and Actuarial Division. For further information regarding this revenue procedure, please contact the Employee Plans Technical and Actuarial Division's taxpayer assistance telephone service or Mr. Rubin between 1:30 and 4:00 p.m., Eastern time, Monday through Thursday on (202) 566-6783/6784 or (202) 343- 0732, respectively. Neither telephone number is toll-free.