4083 / How are the minimum distribution incidental benefit (MDIB) rules that apply to tax sheltered annuities satisfied if the benefit is payable as an annuity?

If a participant’s benefit is payable in the form of a life annuity for the life of the participant that satisfies the requirements of IRC Section 401(a)(9), the MDIB requirement will be satisfied.¹ If a participant’s sole beneficiary as of the annuity starting date is the participant’s spouse, and the distributions satisfy IRC Section 401(a)(9), the MDIB requirement will be satisfied.² Payments under the annuity must be nonincreasing, except as explained at Q 4078.³

If distributions begin under a particular distribution option that is in the form of a joint and survivor annuity for the joint lives of the participant and a nonspouse beneficiary, the MDIB requirement will not be satisfied as of the date distributions begin unless the distribution option provides that annuity payments to be made to the participant on and after his or her required beginning date will satisfy the conditions set forth in Treasury Regulation
Section 1.401(a)(9)-6, A-2(c). Under those provisions, the periodic annuity payment payable to the survivor must not at any time on and after the participant’s required beginning date exceed the applicable percentage of the annuity payment payable to the participant using the RMD MDIB Joint and Survivor Annuity Table.⁴

The applicable percentage is based on how much older the participant is than the beneficiary as of their attained ages on their birthdays in the first calendar year for which distributions to the participant are required. For example, if a beneficiary is 10 or fewer years younger, the survivor annuity may be 100 percent. If the age difference is greater than 10 years, the maximum survivor annuity permitted is less than 100 percent. If there is more than one beneficiary, the age of the youngest beneficiary is used.⁵

If a distribution form includes a life annuity and a period certain, the amount of the annuity payments payable to the beneficiary need not be reduced during the period certain, but in the case of a joint and survivor annuity with a period certain, the amount of the annuity payments payable to the beneficiary must satisfy the foregoing requirements after the expiration of the period certain.⁶

The period certain for annuity distributions commencing during the life of a participant with an annuity starting date on or after his or her required beginning date generally may not exceed the applicable distribution period for the participant ( Q 4078) for the calendar year that contains the annuity starting date.

If the participant’s spouse is his or her sole beneficiary and the annuity provides only a period certain and no life annuity, the period certain may last as long as the joint and survivor life expectancy of the participant and spouse, if that period is longer than the applicable distribution period for the participant.⁷ If distributions commence after the death of the participant under the life expectancy rule ( Q 3900), the period certain for any distributions commencing after death cannot exceed the distribution period determined under the life expectancy provisions of Treasury Regulation Section 1.401(a)(9)-5, A-5(b).

The amount required to be distributed generally is the greater of the MDIB or the regular RMD amount ( Q 3892 to Q 3908). If the amount required to be distributed exceeds the amount distributed, the shortfall is subject to a 50 percent excise tax, levied on the individual, not the plan ( Q ).⁸