§ 45-37-123.106 — Minimum Distribution Requirements

Alabama § 45-37-123.106

• Jurisdiction: Alabama
• Title 45: Local Laws
• Ch. 37: Jefferson County
• Art. 12: Employees
• Part 4: Pension System
• Subpart 5: Benefits

Text

(a) General rules.
(1) EFFECTIVE DATE. Except as otherwise provided in this section, this section shall apply for purposes of determining required minimum distributions for calendar years beginning on and after January 1, 1987.
(2) REQUIREMENTS OF TREASURY REGULATIONS INCORPORATED. All distributions required under this section shall be determined and made in accordance with 26 U.S.C. § 401(a)(9), including the incidental death benefit requirement in 26 U.S.C. § 401(a)(9)(G), and the regulations thereunder.
(3) PRECEDENCE. Subject to the joint and survivor annuity requirements of the plan, the requirements of this section shall take precedence over any inconsistent provisions of the plan.
(b) Time and manner of distribution.
(1) REQUIRED BEGINNING DATE. The member’s entire interest shall be distributed, or begin to be distributed, to the member no later than the member’s required beginning date.
(2) DEATH OF MEMBER BEFORE DISTRIBUTIONS BEGIN. If the member dies before distributions begin, the member’s entire interest shall be distributed, or begin to be distributed, no later than as follows:
a. Life Expectancy Rule, Spouse is
Designated
Beneficiary. At the election of the member or, if no election is made by the member, then at the election of the member’s designated beneficiary, if the member’s surviving spouse is the member’s sole designated beneficiary, then distributions to the surviving spouse shall begin by December 31st of the calendar year immediately following the calendar year in which the member died, or by December 31st of the calendar year in which the member would have attained age
73, for those members who would have attained age 72 after December 31, 2022, and age 73 before January 1, 2033; or age 75, for those members who would have attained age 73 after December 31, 2032
, if later.
b. Life Expectancy Rule, Spouse is Not
Designated
Beneficiary. At the election of the member or, if no election is made by the member, then at the election of the member’s designated beneficiary, if the member’s surviving spouse is not the member’s sole designated beneficiary, then distributions to the designated beneficiary shall begin by December 31st of the calendar year immediately following the calendar year in which the member died.
c. Five-Year Rule.
1. At the election of the member or, if no election is made by the member, then at the election of the member’s designated beneficiary, if the member dies before distributions begin and there is a designated beneficiary, then the member’s entire interest shall be distributed to the designated beneficiary by December 31st 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, then this paragraph shall apply as if the surviving spouse were the member. This paragraph shall apply to all distributions.
2. Members or
designated
beneficiaries may elect on an individual basis whether the
five-year
rule in this paragraph or the life expectancy rule in paragraph a. or paragraph b., and subsection (e) applies to distributions after the death of a member who has a designated beneficiary. The election shall be made no later than the earlier of September 30th of the calendar year in which distribution would be required to begin under paragraph a. or paragraph b., or by September 30th of the calendar year that contains the fifth anniversary of the member’s, or, if applicable, surviving spouse’s, death under this paragraph. If neither the member nor
designated
beneficiary makes an election under this subparagraph, distributions shall be made in accordance with paragraph a. or paragraph b., and subsection (e).
d. No Designated Beneficiary, Five-Year Rule. If there is no designated beneficiary as of September 30th of the year following the year of the member’s death, the member’s entire interest shall be distributed by December 31st of the calendar year containing the fifth anniversary of the member’s death.
e. Surviving Spouse Dies Before Distributions Begin.
1. 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, then this subsection, other than paragraph a., shall apply as if the surviving spouse were the member.
2. For purposes of this subsection and subsection (e), distributions are considered to begin on the member’s required beginning date or, if this paragraph applies, the date distributions are required to begin to the surviving spouse under paragraph a. 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 paragraph a., the date distributions are considered to begin is the date distributions actually commence.
(3) FORM OF DISTRIBUTION. Unless the member’s interest is distributed in the form of an annuity purchased from an insurance company or in a single sum on or before the required beginning date, as of the first distribution calendar year distributions shall be made in accordance with subsections (c), (d), and (e). If the member’s interest is distributed in the form of an annuity purchased from an insurance company, distributions thereunder shall be made in accordance with the requirements of 26 U.S.C. § 401(a)(9) and the regulations thereunder. Any part of the member’s interest which is in the form of an individual account described in 26 U.S.C. § 414(k) shall be distributed in a manner satisfying the requirements of 26 U.S.C. § 401(a)(9) and the regulations thereunder applicable to individual accounts.
(c) Determination of amount to be distributed each year.
(1) GENERAL ANNUITY REQUIREMENTS. A member who is required to begin payments as a result of attaining his or her required beginning date, whose interest has not been distributed in the form of an annuity purchased from an insurance company or in a single sum before that date, may receive payments in the form of annuity payments under the plan. Payments under the annuity shall satisfy the following requirements:
a. The annuity distributions shall be paid in periodic payments made at intervals not longer than one year.
b. The distribution period shall be over a life, or lives, or over a period certain not longer than the period described in subsection (d) or subsection (e).
c. Once payments have begun over a period certain, the period certain shall not be changed even if the period certain is shorter than the maximum permitted.
d. Payments shall either be nonincreasing or increase only to the extent permitted by one of the following conditions:
1. By an annual percentage increase that does not exceed the annual percentage increase in a cost-of-living index that for a 12-month period ending in the year during which the increase occurs or the prior year.
2. By a percentage increase that occurs at specified times, such as, at specified ages, and does not exceed the cumulative total of annual percentage increases in an eligible cost-of-living index since the annuity starting date, or if later, the date of the most recent percentage increase. In cases providing a cumulative increase, an actuarial increase may not be provided to reflect the fact that increases were not provided in the interim years.
3. To the extent of the reduction in the amount of the member’s payments to provide for a survivor benefit upon death, but only if the beneficiary whose life was being used to determine the distribution period described in subsection (d) dies or is no longer the member’s
designated
beneficiary pursuant to a qualified domestic relations order within the meaning of 26 U.S.C. § 414(p).
4. To allow a
designated
beneficiary to convert the survivor portion of a joint and survivor annuity into a single sum distribution upon the member’s death.
5. To pay increased benefits that result from a plan amendment or other increase in the member’s accrued benefit under the plan.
6. By a constant percentage, applied not less frequently than annually, at a rate that is less than five percent per year.
7. To provide a final payment upon the death of the member that does not exceed the excess of the actuarial present value of the member’s accrued benefit, within the meaning of 26 U.S.C. § 411(a)(7), calculated as of the annuity starting date using the applicable interest rate and the applicable mortality table under 26 U.S.C. § 417(e), or, if greater, the total amount of employee contributions, over the total of payments before the death of the member.
8. As a result of dividend or other payments that result from actuarial gains, provided:
(i) Actuarial gain is measured not less frequently than annually;
(ii) The resulting dividend or other payments are either paid no later than the year following the year for which the actuarial experience is measured or paid in the same form as the payment of the annuity over the remaining period of the annuity, beginning no later than the year following the year for which the actuarial experience is measured;
(iii) The actuarial gain taken into account is limited to actuarial gain from investment experience;
(iv) The assumed interest rate used to calculate the actuarial gains is not less than three percent; and
(v) The annuity payments are not also being increased by a constant percentage as described in subparagraph 6.
(2) AMOUNT REQUIRED TO BE DISTRIBUTED BY REQUIRED BEGINNING DATE.
a.1. In the case of a member whose interest in the plan is being distributed as an annuity pursuant to subdivision (1), the amount that shall 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 under paragraph(b)(2) a. or b., is the payment that is required for one payment interval.
2. 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.
3. Payment intervals are the periods for which payments are received, such as, bimonthly, monthly, semi-annually, or annually. All of the member’s benefit accruals as of the last day of the first distribution calendar year shall be included in the calculation of the amount of the annuity payments for payment intervals ending on or after the member’s required beginning date.
b. In the case of a single sum distribution of a member’s entire accrued benefit during a distribution calendar year, the amount that is the required minimum distribution for the distribution calendar year, and thus not eligible for rollover under 26 U.S.C. § 402(c), is determined under this paragraph. The portion of the single sum distribution that is a required minimum distribution 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. If the single sum distribution 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.
(3) ADDITIONAL ACCRUALS AFTER FIRST DISTRIBUTION CALENDAR YEAR. Any additional benefits accruing to the member in a calendar year after the first distribution calendar year shall be distributed beginning with the first payment interval ending in the calendar year immediately following the calendar year in which the amount accrues. Notwithstanding the preceding, the plan shall not fail to satisfy the requirements of this subdivision and 26 U.S.C. § 401(a)(9) merely because there is an administrative delay in the commencement of the distribution of the additional benefits accrued in a calendar year, provided that the actual payment of the amount commences as soon as practicable. However, payment shall commence no later than the end of the first calendar year following the calendar year in which the additional benefit accrues, and the total amount paid during the first calendar year shall be no less than the total amount that was required to be paid during that year under this subdivision.
(4) DEATH OF MEMBER AFTER DISTRIBUTIONS BEGIN. If a member dies after distribution of the member’s interest begins in the form of an annuity meeting the requirements of this section, then the remaining portion of the member’s interest shall continue to be distributed over the remaining period over which distributions commenced.
(d) Requirements for annuity distributions that commence during member’s lifetime.
(1) JOINT LIFE ANNUITIES WHERE THE
DESIGNATED
BENEFICIARY IS THE MEMBER’S SPOUSE. If distributions commence under a distribution option that is in the form of a joint and survivor annuity for the joint lives of the member and the member’s spouse, the minimum distribution incidental benefit requirement shall not be satisfied as of the date distributions commence unless, under the distribution option, the periodic annuity payment payable to the survivor does not at any time on and after the member’s required beginning date exceed the annuity payable to the member. In the case of an annuity that provides for increasing payments, the requirement of this subdivision shall not be violated merely because benefit payments to the
designated
beneficiary increase, provided the increase is determined in the same manner for the member and the
designated
beneficiary. If the form of distribution combines a joint and survivor annuity for the joint lives of the member and the member’s spouse and a period certain annuity, the preceding requirements shall apply to annuity payments to be made to the designated beneficiary after the expiration of the period certain.
(2) JOINT LIFE ANNUITIES WHERE THE
DESIGNATED
BENEFICIARY IS NOT THE MEMBER’S SPOUSE. If the member’s interest is being distributed in the form of a joint and survivor annuity for the joint lives of the member and a
designated
beneficiary other than the member’s spouse, the minimum distribution incidental benefit requirement shall not be satisfied as of the date distributions commence unless under the distribution option, the annuity payments to be made on and after the member’s required beginning date shall satisfy the conditions of this subdivision. The periodic annuity payment payable to the survivor shall not at any time on and after the member’s required beginning date exceed the applicable percentage of the annuity payment payable to the member using the table set forth in Treasury Regulation § 1.401(a)(9)-6, Q & A-2(c)(2). The applicable percentage is based on the adjusted member/
designated
beneficiary age difference. The adjusted member/
designated
beneficiary age difference is determined by first calculating the excess of the age of the member over the age of the
designated
beneficiary based on their ages on their birthdays in a calendar year. If the member is younger than age 70, the age difference determined in the previous sentence is reduced by the number of years that the member is younger than age 70 on the member’s birthday in the calendar year that contains the annuity starting date. In the case of an annuity that provides for increasing payments, the requirement of this subdivision shall not be violated merely because benefit payments to the
designated
beneficiary increase, provided the increase is determined in the same manner for the member and the
designated
beneficiary. If the form of distribution combines a joint and survivor annuity for the joint lives of the member and a
non-spouse designated
beneficiary and a period certain annuity, the preceding requirements shall apply to annuity payments to be made to the designated beneficiary after the expiration of the period certain.
(3) PERIOD CERTAIN ANNUITIES. Unless the member’s spouse is the sole designated beneficiary and the form of distribution is a period certain and no life annuity, the period certain for an annuity distribution commencing during the member’s lifetime may not exceed the applicable distribution period for the member under the Uniform Lifetime Table set forth in Treasury Regulation § 1.401(a)(9)-9 for the calendar year that contains the annuity starting date. If the annuity starting date precedes the year in which the member reaches age 70, the applicable distribution period for the member is the distribution period for age 70 under the Uniform Lifetime Table set forth in Treasury Regulation § 1.401(a)(9)-9 plus the excess of 70 over the age of the member as of the member’s birthday in the year that contains the annuity starting date. If the member’s spouse is the member’s sole designated beneficiary and the form of distribution is a period certain and no life annuity, the period certain may not exceed the longer of the member’s applicable distribution period, as determined under this subdivision, or the joint life and last survivor expectancy of the member and the member’s spouse as determined under the Joint and Last Survivor Table set forth in Treasury Regulation § 1.401(a)(9)-9, using the member’s and spouse’s attained ages as of the member’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) MEMBER SURVIVED BY DESIGNATED BENEFICIARY AND LIFE EXPECTANCY RULE. At the election of the member or, if no election is made by the member, then at the election of the member’s designated beneficiary, if the member dies before the date distribution of his or her interest begins and there is a designated beneficiary, the member’s entire interest shall be distributed, beginning no later than the time described in paragraph (b)(2)a. or b., 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
designated
beneficiary’s age as of the
designated
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
designated
beneficiary’s age as of the
designated
beneficiary’s birthday in the calendar year that contains the annuity starting date.
(2) MEMBER SURVIVED BY DESIGNATED BENEFICIARY AND FIVE-YEAR RULE. At the election of the member or, if no election is made by the member, then at the election of the member’s designated beneficiary, if the member dies before distributions begin and there is a designated beneficiary, then the member’s entire interest shall be distributed to the designated beneficiary by December 31st of the calendar year containing the fifth anniversary of the member’s death. This subdivision shall apply to all distributions.
(3) NO DESIGNATED BENEFICIARY. If the member dies before the date distributions begin and there is no designated beneficiary as of September 30th of the year following the year of the member’s death, distribution of the member’s entire interest shall be completed by December 31st of the calendar year containing the fifth anniversary of the member’s death.
(4) 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 shall apply as if the surviving spouse were the member, except that the time by which distributions shall begin shall be determined without regard to paragraph (b)(2)a.
(f) Definitions.
(1) ACTUARIAL GAIN. The difference between an amount determined using the actuarial assumptions, such as, investment return, mortality, expense, and other similar assumptions, used to calculate the initial payments before adjustment for any increases and the amount determined under the actual experience with respect to those factors. Actuarial gain also includes differences between the amount determined using actuarial assumptions when an annuity was purchased or commenced and the amount determined using actuarial assumptions used in calculating payments at the time the actuarial gain is determined.
(2) DESIGNATED BENEFICIARY. The individual who is
the designated beneficiary under 26 U.S.C. § 401(a)(9) and Treasury Regulation
§ 1.401(a)(9)-4 and is designated as the beneficiary under Section 45-37-123.103 to the extent not otherwise inconsistent with the Internal Revenue Code or regulations thereunder
.
(3) DISTRIBUTION CALENDAR YEAR. A calendar year for which a minimum distribution is required. For distributions beginning before the member’s death, the first distribution calendar year is the calendar year immediately preceding the calendar year which contains the member’s required beginning date. For distributions beginning after the member’s death, the first distribution calendar year is the calendar year in which distributions are required to begin pursuant to subsection (b).
(4) ELIGIBLE COST-OF-LIVING INDEX. An index described below:
a. A consumer price index that is based on prices of all items, or all items excluding food and energy, and issued by the Bureau of Labor Statistics, including an index for a specific population, such as urban consumers or urban wage earners and clerical workers, and an index for a geographic area or areas, such as a given metropolitan area or state; or
b. A percentage adjustment based on a cost-of-living index described in paragraph a., or a fixed percentage, if less. In any year when the cost-of-living index is lower than the fixed percentage, the fixed percentage may be treated as an increase in an eligible cost-of-living index, provided it does not exceed the sum of:
1. The cost-of-living index for that year; and
2. The accumulated excess of the annual cost-of-living index from each prior year over the fixed annual percentage used in that year, reduced by any amount previously utilized under this paragraph.
c. A percentage adjustment based on the increase in compensation for the position held by the member at the time of retirement, and provided under the terms of the plan.
(5) LIFE EXPECTANCY. The life expectancy as computed by use of the Single Life Table in Treasury Regulation § 1.401(a)(9)-9.
(6) REQUIRED BEGINNING DATE. The April 1st of the calendar year following the later of:
a. The calendar year in which the member attains age
73, for those members who attain age 72 after December 31, 2022, and age 73 before January 1, 2033; or attains age 75, for those members who attain age 73 after December 31, 2032
; or
b. The calendar year in which the member retires.

Legislative History

(Act 2013-415, p. 1586, §2:5.7; Act 2021-456, §1; Act 2024-260, §1.)