On July 14, 2023, the Internal Revenue Service (IRS) issued Notice 2023-54, providing guidance related to certain required minimum distributions (RMDs) for 2023 and transition relief regarding the change in the required beginning date for RMDs under Internal Revenue Code Section 401(a)(9) made by Section 107 of the SECURE 2.0 Act of 2022.

Distributions characterized as RMDs in 2023

Section 107 of SECURE 2.0 changed the RMD age for employer-sponsored defined benefit (DB) and defined contribution (DC) plans, including profit sharing, 401(k), 403(b), and governmental 457(b) plans. The RMD age for individuals who attain age 72 after December 31, 2022, was changed from age 72 to age 73 (increasing to age 75 for individuals who will attain age 74 after December 31, 2032).

Because SECURE 2.0 was signed into law on December 29, 2022, this near immediate change in the RMD age did not leave plan administrators time to adjust their automated payment systems, resulting in some participants receiving distributions characterized as RMDs in 2023 that, due to the law change, were not RMDs.

The Treasury Department and the IRS are providing the following relief for distributions made between January 1, 2023, and July 31, 2023, that would have been RMDs absent the SECURE 2.0 law change, to a participant born in 1951 (or such a participant’s surviving spouse):

• Plan administrators are not considered to have failed the requirement to treat the distributions as eligible rollover distributions. (Because RMDs are not eligible for rollover, individuals would not have been given that choice when they completed the plan’s election forms.)
• The 60-day rollover period is extended for affected participants (or their surviving spouses), giving them until September 30, 2023, to roll over the mischaracterized amounts.

Defined contribution plans that did not make a specified RMD

Generally, a deceased employee’s benefit in a DC plan must be entirely paid to a designated beneficiary within 10 years of the employee’s death. If the designated beneficiary is an eligible designated beneficiary (as defined in the statute), payments can be made over the designated beneficiary’s lifetime or life expectancy instead of 10 years. If an eligible designated beneficiary dies before receiving the employee’s total benefit, any remaining benefits must be paid to their beneficiary within 10 years of the eligible designated beneficiary’s death.

This Notice provides relief to DC plans that failed to make a specified RMD, which for purposes of this Notice is defined as any RMD that would have been required in 2023 to be made to:

• A designated beneficiary of an employee who died in 2020, 2021, or 2022, and on or after the employee’s required beginning date, and payments to the designated beneficiary are not being made over their lifetime or life expectancy.
• A beneficiary of an eligible designated beneficiary who died in 2020, 2021, or 2022, and the eligible designated beneficiary was being paid over their lifetime or life expectancy.

The IRS is providing the following relief for specified RMDs:

• The plan will not be treated as having failed to satisfy the RMD rules because it did not make a specified RMD.
• The IRS will not assess an excise tax to the individual if they did not take a specified RMD.

Applicability date of final RMD regulations

The Notice provides that, when the final RMD regulations are issued, they will apply for calendar years beginning no earlier than 2024.

Please contact your Milliman consultant to review how these provisions may impact your plan(s).