This Benefits Alert reviews an important change made by the U.S. Treasury Department (Treasury) and Internal Revenue Service (IRS) in their final required minimum distribution (RMD) regulations published on July 18, 2024. Specifically, the change affects the maximum survivor percentage allowed under the minimum distribution incidental benefit (MDIB) requirements for death benefits from a defined benefit (DB) pension plan when a participant elects a joint and survivor annuity with a non-spouse beneficiary. This change applies to annuity starting dates beginning on or after January 1, 2025.
Under the MDIB requirements, death and other ancillary benefits offered by a retirement plan must remain secondary to the plan’s primary purpose of providing retirement benefits during the participant’s lifetime, so that from an actuarial perspective, the participant, rather than the beneficiary, is expected to be the primary recipient of RMD payments. The final RMD regulations specify how distributions can be made to satisfy those requirements.
- The MDIB requirements are automatically satisfied if the participant elects to have their retirement benefits paid in the form of either a single life annuity (payable only for the participant’s life) or a joint and survivor annuity with the participant’s spouse as the sole beneficiary (payable for the joint lives of the participant and the spouse).
- When a participant elects a joint and survivor annuity form of payment with a younger non-spouse beneficiary, the MDIB requirements concentrate on the age gap between the participant and their younger non-spouse beneficiary. The greater the age difference, the more restrictive the MDIB requirements become. The beneficiary’s survivor benefit paid after the participant’s death cannot, at any point on or after the participant’s required beginning date for RMDs, exceed the applicable survivor 1 (defined by the regulation and explained below) of the pre-death annuity payment made to the participant. If the post-death survivor’s benefit exceeds this limit, the plan will fail to meet the MDIB requirements.
Annuity starting dates prior to January 1, 2025
The applicable survivor percentage for annuity starting dates prior to January 1, 2025, is determined as follows:
- Age difference. Calculate the difference between the participant’s age and the beneficiary's age as of their birthdays in the calendar year of the annuity starting date.
- Adjusted age difference. If the participant is younger than age 70, reduce the age difference by the number of years the participant is younger than age 70 as of their birthday in the calendar year of their annuity starting date. If the participant is age 70 or older, there is no reduction to the age difference.
Adjusted age difference = (P – B) – (70 – P), where:
P = Participant’s age on their birthday in the calendar year of the annuity starting date
B = Beneficiary’s age on their birthday in the calendar year of the annuity starting date
- Applicable survivor percentage. Look up the adjusted age difference in the Applicable Survivor Percentage Table below to find the maximum allowable survivor annuity percentage under the MDIB requirements that can be paid to the non-spouse beneficiary after the participant’s death.
Example: A participant born on March 1, 1957, retires on January 1, 2023, and the plan offers a 50%, 75%, or 100% joint and survivor annuity with either a spouse or non-spouse beneficiary. If the participant wants to choose his daughter, born February 5, 1987, as the joint annuitant, check whether all the joint and survivor annuity options satisfy the MDIB requirement:
- Age difference. The participant’s age as of March 1, 2023, (his birthday in the calendar year of the annuity starting date) is 66. The daughter’s age as of February 5, 2023, is 36, for an age difference of 30 years.
- Adjusted age difference. The participant is 4 years younger than age 70 as of his birthday in 2023. The adjusted age difference is 30 – (70 – 66), or 26 years.
- Applicable survivor percentage. The applicable survivor percentage from the Applicable Survivor Percentage Table for an adjusted age difference of 26 years is 64%.
- Conclusion. As of January 1, 2023, (the annuity starting date), the plan will not satisfy the MDIB requirement if this participant is allowed to elect the 75% or 100% joint and survivor annuities. Only the 50% joint and survivor annuity will satisfy the MDIB requirements with the chosen annuity start date and beneficiary since the applicable survivor percentage is 64%.
The rules above are described in paragraph (c) of Q&A-2 in the prior RMD regulation §1.401(a)(9)-6 issued on June 15, 2004.
Observation: The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and the SECURE 2.0 Act of 2022 (SECURE 2.0 Act) changed the RMD ages as shown in Figure 1. While the RMD age was changed, the formula to calculate the adjusted age difference prior to January 1, 2025, continued to use age 70.
Figure 1: Required minimum distribution age
| Effective for individuals attaining | RMD age | |
|---|---|---|
| Age 70½ before 1/1/2020 (born before July 1, 1949) |
70½ | Prior to the SECURE Act |
| Age 70½ after 12/31/2019 and age 72 before 1/1/2023 (born on or after July 1, 1949, and before January 1, 1951) |
72 | Change with the SECURE Act |
| Age 72 after 12/31/2022 and age 73 before 1/1/2033 (born on or after January 1, 1951, and before January 1, 1960*) |
73 | Change with the SECURE 2.0 Act |
| Age 73 after 12/31/2032 (born on or after January 1, 1960) |
75 | Change with the SECURE 2.0 Act |
* The proposed RMD regulations clarify that the applicable RMD age for individuals born in 1959 is age 73.
Annuity starting dates on or after January 1, 2025
The steps to determining the applicable survivor percentage on or after January 1, 2025, are generally the same as above, except for step 2. The participant’s applicable RMD age is used instead of age 70.
Adjusted age difference = (P – B) – (RMD – P), where:
P = Participant’s age on their birthday in the calendar year of the annuity starting date
B = Beneficiary’s age on their birthday in the calendar year of the annuity starting date
RMD = Participant’s applicable RMD age
Plans with earlier mandatory commencement dates
Some plans require participants to start distributions at an age earlier than the required beginning date2 (RBD) based on the increased RMD ages above (for example, they require benefits to commence at age 70½ or at normal retirement age). However, distributions made earlier than the statutory RBD are not considered RMDs. The age used for determining the adjusted age difference is the statutory RMD age (shown in Figure 1), not an earlier age the plan may require participants to commence benefits.
The next example shows how the applicable survivor percentage is calculated for annuity starting dates on or after January 1, 2025.
Example: A participant born on March 1, 1958, retires on January 1, 2025, and the plan offers a 50%, 75%, and 100% joint and survivor annuity with either a spouse or non-spouse beneficiary. If the participant wants to choose his daughter, born February 5, 1989, as the joint annuitant, check whether all the joint and survivor annuity options satisfy the MDIB requirement:
- Age difference. The participant’s age as of March 1, 2025, (his birthday in the calendar year of the annuity starting date) is 67. The daughter’s age as of February 5, 2025, is 36, for an age difference of 31 years.
- Adjusted age difference. The participant’s applicable RMD age is 73. The adjusted age difference is 31 – (73 – 67), or 25 years.
- Applicable survivor percentage. The applicable survivor percentage from the Applicable Survivor Percentage Table for an adjusted age difference of 25 years is 66%.
- Conclusion. As of January 1, 2025, (the annuity starting date), the plan will not satisfy the MDIB requirement if this participant is allowed to elect the 75% or 100% joint and survivor annuities. Only the 50% joint and survivor annuity will satisfy the MDIB requirements with the chosen annuity start date and beneficiary since the applicable survivor percentage is 66%.
The rules above are described in paragraphs §1.401(a)(9)-6(b)(2)(iii) and (k)(2) of the 2024 final RMD regulations.
Increasing annuity benefit payments
Plans that provide an annuity with increasing payments will not violate these requirements so long as the increases for both the participant and the beneficiary are determined in the same manner.
Applicable survivor percentage table
The table used to determine the applicable survivor percentage (the maximum allowable survivor percentage) was not changed by the 2024 final RMD regulations. In the case of an annuity starting date of a joint and survivor annuity with a non-spouse beneficiary, the MDIB requirements are satisfied if the survivor annuity percentage payable after the participant’s death does not exceed the applicable survivor percentage in the table below.
As the table below illustrates, the younger the non-spouse beneficiary is than the participant, the smaller the allowable survivor annuity percentage, so that a greater actuarial amount of the joint and survivor annuity would be paid during the participant’s lifetime.
Figure 2: Applicable survivor percentage table
| Adjusted age difference |
Applicable survivor percentage |
|---|---|
| 10 years or less | 100% |
| 11 | 96% |
| 12 | 93% |
| 13 | 90% |
| 14 | 87% |
| 15 | 84% |
| 16 | 82% |
| 17 | 79% |
| 18 | 77% |
| 19 | 75% |
| 20 | 73% |
| 21 | 72% |
| 22 | 70% |
| 23 | 68% |
| 24 | 67% |
| 25 | 66% |
| 26 | 64% |
| 27 | 63% |
| 28 | 62% |
| 29 | 61% |
| 30 | 60% |
| 31 | 59% |
| 32 | 59% |
| 33 | 58% |
| 34 | 57% |
| 35 | 56% |
| 36 | 56% |
| 37 | 55% |
| 38 | 55% |
| 39 | 54% |
| 40 | 54% |
| 41 | 53% |
| 42 | 53% |
| 43 | 53% |
| 44 and greater | 52% |
Please contact your Milliman consultant to discuss how this change may impact your plan(s).
1 The RMD regulations use the term “applicable percentage.” However, in this article, we use the term “applicable survivor percentage” for the sake of clarity.
2 In general, the required beginning date, i.e., the date the first RMD must be made from the plan, is April 1 following the calendar year in which the individual attains the RMD age.