As discussed in our previous blog post, the SECURE Act changes the date that employees are required to begin making retirement distributions from qualified plans from the April 1st after reaching age 70 ½ to the April 1st after reaching age 72. This is not the only significant change made to the required minimum distribution rules. The SECURE Act also makes sweeping changes to the rules that govern how a defined contribution plan must distribute an employee’s account balance to beneficiaries after the employee has died.

Before the passing of the SECURE Act, the required beginning date for post-death distributions was dependent on whether the employee died before or after his or her required beginning date and whether the employee had a designated beneficiary.  The pre-SECURE Act post-death distribution rules no longer apply to defined contribution plans and have been replaced with a general rule. The general rule requires a plan to distribute the entire interest of the employee to a beneficiary within 10 years after the death of such employee (regardless of whether distributions of the employee’s interest had begun).

The 10-year general rule does not apply if the employee has not designated a beneficiary. In that case, the entire interest of the employee must be distributed within 5 years after the death of such employee.

The 10-year general rule also does not apply to any eligible designated beneficiary.  An “eligible designated beneficiary” is an individual that has been designated as a beneficiary and, on the date of the employee’s death, is: (i) the surviving spouse of the employee; (ii) a child of the employee who has not reached the age of majority; (iii) a chronically ill individual; or (iv) any other individual who is not more than ten years younger than the employee. Distributions to eligible designated beneficiaries can generally be made over the life of the beneficiary, and are required to begin within one year following the death of the employee (although the required beginning date for a surviving spouse will not be earlier than the date on which the employee would have reached age 72). Upon the death of an eligible designated beneficiary, the account must be distributed within 10 years of the eligible designated beneficiary’s death. Lastly, a child will lose his or her eligible designated beneficiary status upon reaching the age of majority, and the remaining balance of the employee’s account must be distributed to such a child within 10 years after the child reaches the age of majority.

The new post-death distribution rules are effective for post-death distributions made after December 31, 2019, unless the plan is collectively bargained. Although plan documents are not required to be updated for the SECURE Act until the 2022 plan year, plans must operate under these new rules, meaning that the 10-year general rule is in effect for the post-death distributions of employees that die on or after January 1, 2020.