SECTION 29.56. Minimum Distribution Requirements

(a) General Rules and Definitions.

(1) Intent. This rule is intended to comply with a reasonable good faith interpretation of the requirements of 26 U.S.C. §401(a)(9).

(2) Plan Qualification and §401(a)(9) compliance. Pursuant to Tex. Gov't Code §825.506(a) and (c), this section modifies the TRS retirement plan to the extent necessary for the plan to be a qualified plan and comply with 26 U.S.C. §401(a)(9) and prevails over any inconsistent provision of the plan.

(3) Requirements of Treasury Regulations Incorporated. All distributions required under this section will be determined in accordance with 26 C.F.R. §§1.401(a)(9)-1 through 1.401(a)(9)-9 of the Internal Revenue Service, U.S. Department of Treasury regulations.

(4) Definition of Participant. In this section, a TRS member or TRS retiree.

(5) Definition of Designated Beneficiary. The individual who is designated as the beneficiary under applicable plan provisions and who is the designated beneficiary under 26 U.S.C. §401(a)(9) and §1.401(a)(9)-1, Q&A-4, of the Treasury regulations.

(6) Definition of Distribution Calendar Year. A calendar year for which a minimum distribution is required. For distributions beginning before a participant's death, the first distribution calendar year is the calendar year immediately preceding the calendar year that contains the participant's required beginning date. For distributions beginning after a participant's death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to subsection (b)(2) of this section.

(7) Definition of Life Expectancy. For purposes of this rule, life expectancy means life expectancy as computed by use of the Single Life Table in §1.401(a)(9)-9 of the Treasury regulations.

(8) Definition of Required Beginning Date. The date specified in subsection (b)(1) of this section.

(b) Time and Manner of Distribution.

(1) Required Beginning Date.

(A) Required beginning date means April 1 of the calendar year following the later of -

(i) the calendar year in which the participant attains age 70 1/2, or

(ii) the calendar year in which the participant terminates employment with a TRS-covered employer.

(B) A participant is required to take distribution of the participant's entire interest, or to begin to take a distribution of the entire interest, no later than the participant's required beginning date.

(2) Death of Participant Before Distributions Begin. If a member dies before distributions begin, the member's entire interest is required to be distributed, or begin to be distributed, no later than described in subparagraphs (A) - (D) of this paragraph. For purposes of this paragraph and subsection (e) of this section, distributions are considered to begin on the member's required beginning date (or, if subparagraph (D) of this paragraph applies, the date distributions are required to begin to the surviving spouse under subparagraph (A) of this paragraph). If annuity payments irrevocably commence to the member before the member's required beginning date (or to the member's surviving spouse before the date distributions are required to begin to the surviving spouse under subparagraph (A) of this paragraph), the date distributions are considered to begin is the date distributions actually commence.

(A) If the member's surviving spouse is the member's sole designated beneficiary, then distributions to the surviving spouse are required to begin by December 31 of the calendar year immediately following the calendar year in which the member died, or by December 31 of the calendar year in which the member would have attained age 70 1/2, if later.

(B) If the member's surviving spouse is not the member's sole designated beneficiary, then distributions to the designated beneficiary are required to begin by December 31 of the calendar year immediately following the calendar year in which the member died.

(C) If there is no designated beneficiary as of September 30 of the year following the year of the member's death, the member's entire interest is required to be distributed by December 31 of the calendar year containing the fifth anniversary of the member's death.

(D) If the member's surviving spouse is the member's sole designated beneficiary and the surviving spouse dies after the member but before distributions to the surviving spouse begin, this paragraph, other than subparagraph (A) of this paragraph, will apply as if the surviving spouse were the member.

(3) Form of Distribution. As of the first distribution calendar year, distributions are required be made in accordance with subsections (c), (d), (e), (f), and (g) of this section.

(c) Determination of Amount to be Distributed Each Year.

(1) General Annuity Requirements. If the participant's interest is paid in the form of annuity distributions to the participant after retirement or to the participant's beneficiary before or after retirement of the participant, payments under the annuity will satisfy the following requirements:

(A) the annuity distributions will be paid in periodic payments made at monthly intervals;

(B) the distribution period will be over a life (or lives) or over a period certain not longer than the period described in the Treasury regulations;

(C) once payments have begun over a period certain, the period certain will not be changed even if the period certain is shorter than the maximum permitted; and

(D) payments will either be non-increasing or will increase only as permitted in the Treasury regulations.

(2) Amount Required to be Distributed by Required Beginning Date.

(A) The amount that is required to be distributed on or before the member's required beginning date (or, if the member dies before distributions begin, the date distributions are required to begin to a beneficiary under subparagraph (A) or (B) of subsection (b)(2) of this section) is the payment that is required for one month. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year. All of the member's benefit accruals as of the last day of the first distribution calendar year will be included in the calculation of the amount of the annuity payments for months ending on or after the member's required beginning date. For a retiree receiving a distribution of a partial lump sum option (PLSO) payment or a deferred retirement option plan (DROP) payment in conjunction with a monthly annuity payment due for a month beginning on or before the member's required beginning date, the minimum distribution requirement of this section is satisfied by the annuity payment required to be made for that month.

(B) In the case of a refund to a member of the member's entire accumulated contributions, the amount that is the required minimum distribution for the distribution calendar year (and thus is not eligible for rollover under 26 U.S.C. §402(c)) is determined by treating the single sum distribution as a distribution from an individual account plan and treating the amount of the single sum distribution as the member's account balance as of the end of the relevant valuation calendar year. The minimum amount required to be distributed for each distribution calendar year is equal to the quotient obtained by dividing the account by the applicable distribution period using the Uniform Lifetime Table in A-2 of Treasury regulation §1.401(a)(9)-9. If the refund is being made in the calendar year containing the required beginning date and the required minimum distribution for the member's first distribution calendar year has not been distributed, the portion of the single sum distribution that represents the required minimum distribution for the member's first and second distribution calendar year is not eligible for rollover.

(d) Requirements For Distributions of Retirement Annuity Payments to Retiree or Beneficiary

(1) Option 1 or 5 Retirement Payment Plan With Non-spousal Beneficiary. If the participant's interest is to be distributed in the form of an Option 1 or 5 annuity and the participant designated a nonspouse beneficiary, annuity payments to the designated beneficiary after the retiree's death must not at any time exceed the applicable percentage of the annuity payment for such period that would have been payable to the retiree using the table set forth in Q&A-2 of §1.401(a)(9)-6 of the Treasury regulations. An Option 1 or 5 payment plan that would result in a payment to a designated nonspouse beneficiary above the applicable percentage shall not be available to the participant.

(2) Option 3 and 4 Retirement Payment Plans.

(A) If the participant's spouse is not the sole designated beneficiary, the participant may not select an Option 3 or 4 retirement payment plan if the period certain for an annuity distribution commencing during the retiree's lifetime would exceed the applicable distribution period for the retiree under the Uniform Lifetime Table set forth in §1.401(a)(9)-9 of the Treasury regulations for the calendar year that contains the annuity starting date. If the annuity starting date precedes the year in which the retiree reaches age 70, the applicable distribution period for the retiree is the distribution period for age 70 under the Uniform Lifetime Table set forth in §1.401(a)(9)-9 of the Treasury regulations plus the excess of 70 over the age of the retiree as of the retiree's birthday in the year that contains the annuity starting date.

(B) If the participant's spouse is the sole designated beneficiary, the participant may not select an Option 3 or 4 retirement payment plan if the period certain would exceed the longer of the retiree's applicable distribution period, as determined under this paragraph, or the joint life and last survivor expectancy of the participant and the participant's spouse as determined under the Joint and Last Survivor Table set forth in §1.401(a)(9)-9 of the Treasury regulations, using the participant's and spouse's attained ages as of the participant's and spouse's birthdays in the calendar year that contains the annuity starting date.

(e) Requirements for Minimum Distributions Where Member Dies Before Date Distributions Begin.

(1) Participant Survived by Designated Beneficiary. If the member dies before the date that distribution of his or her interest begins (as described in subsection (b)(2) of this section) and there is a designated beneficiary, the entire interest payable with respect to the member is required to be distributed, beginning no later than the time described in subparagraph (A) or (B) of subsection (b)(2) of this section, over the life of the designated beneficiary or over a period certain not exceeding:

(A) unless the annuity starting date is before the first distribution calendar year, the life expectancy of the designated beneficiary determined using the beneficiary's age as of the beneficiary's birthday in the calendar year immediately following the calendar year of the member's death; or

(B) if the annuity starting date is before the first distribution calendar year, the life expectancy of the designated beneficiary determined using the beneficiary's age as of the beneficiary's birthday in the calendar year that contains the annuity starting date.

(2) No Designated Beneficiary. If the member dies before the date distributions begin and there is no designated beneficiary as of September 30 of the year following the year of the member's death, distribution of the member's entire interest is required to be completed by December 31 of the calendar year containing the fifth anniversary of the member's death.

(3) Death of Surviving Spouse Before Distributions to Surviving Spouse Begin. If the member dies before the date distribution of his or her interest begins, the member's surviving spouse is the member's sole designated beneficiary, and the surviving spouse dies before distributions to the surviving spouse begin, this subsection will apply as if the surviving spouse were the member, except that the time by which distributions must begin will be determined without regard to subsection (b)(2)(A) of this section.

(f) Election To Apply 5-Year Rule to Distributions to Designated Beneficiaries. Notwithstanding subsection (e) of this section, if the member dies before distributions begin and there is a designated beneficiary entitled to a lump sum distribution, distribution of the lump sum to the designated beneficiary is not required to begin by the date specified in subsection (e)(1) of this section, if the member's entire interest is distributed to the designated beneficiary by December 31 of the calendar year containing the fifth anniversary of the member's death. If the member's surviving spouse is the member's sole designated beneficiary and the surviving spouse dies after the member but before distributions to either the member or the surviving spouse begin, this provision will apply as if the surviving spouse were the member.

(g) Requirements for Minimum Distributions Where Participant Dies After Distributions Begin. If a participant dies after retirement benefits have commenced, benefits must continue to be distributed to the beneficiary at least as rapidly as provided for under the option elected by the participant pursuant to §29.8 of this title (relating to Retirement Payment Plans).

(h) An eligible member who has applied for service or disability retirement and who dies on or after the retirement date will be considered to have retired and commenced distributions.

(i) A participant or beneficiary is required to initiate and complete appropriate TRS processes to take distributions in accordance with this section. A participant or beneficiary who fails to take distributions in accordance with this section is subject to federal tax law establishing an additional tax on minimum distributions that are required but not taken.

(j) Grandfather Provisions. Notwithstanding any provision of this section to the contrary, with respect to any annuity option or other plan provision as in effect on April 17, 2002, TRS will apply a reasonable and good faith interpretation of the requirement of Internal Revenue Code §401(a)(9). TRS is exercising the authority granted to governmental plans in the Pension Protection Act of 2006 in establishing this section as its good faith interpretation of the requirements of Internal Revenue Code §401(a)(9). The provisions of this section, including subsections (d) and (e) of this section, affecting payment options otherwise available under the TRS plan are applicable to retirements with an effective date after December 31, 2007, or to a benefit payable as a result of the death of a participant after December 31, 2007.

Source Note: The provisions of this §29.56 adopted to be effective May 3, 2007, 32 TexReg 2368