| REG-109481-99 |
January 17, 2001 |
Special Rules Under Section 417(a)(7) for
Written Explanations Provided by Qualified
Retirement Plans After Annuity Starting Dates
DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-109481-99] RIN 1545-AX34
TITLE: Special Rules Under Section 417(a)(7) for Written Explanations
Provided by Qualified Retirement Plans After Annuity Starting Dates
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
SUMMARY: This document contains proposed regulations relating to the
special rule added by the Small Business Job Protection Act of 1996
which permits the required written explanations of certain annuity
benefits to be provided by qualified retirement plans to plan
participants after the annuity starting date. These regulations
affect administrators of, participants in, and beneficiaries of
qualified retirement plans.
DATES: Written and electronic comments
and requests for a public hearing must be received by April 17,
2001.
ADDRESSES: Send submissions to: CC:M&SP:RU (REG-109481-99), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand-delivered Monday
through Friday between the hours of 8 a.m. and 5 p.m. to :
CC:M&SP:RU (REG-109481-99),
Courier's Desk,
Internal Revenue Service,
1111 Constitution Avenue, NW.,
Washington D.C.
Alternatively, taxpayers may submit comments electronically via the
Internet by selecting the "Tax Regs" option on the IRS Home Page, or
by submitting comments directly to the IRS Internet site at
http://www.irs.gov/tax_regs/regslist.html.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Robert
M. Walsh, (202) 622-6090; concerning submissions and delivery of
comments, Sonya Cruse (202) 622-7180 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in this notice of
proposed rulemaking has been submitted to the Office of Management
and Budget for review in accordance with the Paperwork Reduction Act
of 1995 (44 U.S.C. 3507(d)). Comments on the collection of
information should be sent to the Office of Management and Budget ,
Attn: Desk Officer for the DEPARTMENT OF THE TREASURY, Office of
Information and Regulatory Affairs, Washington, DC 20503, with
copies to the Internal Revenue Service , Attn: IRS Reports Clearance
Officer, W:CAR:MP:FP:S:O, Washington, DC 20224. Comments on the
collection of information should be received by March 19, 2001.
Comments are specifically requested concerning:
Whether the proposed collection of information is necessary
for the proper performance of the functions of the IRS, including
whether the information will have practical utility;
The accuracy of the estimated burden associated with the
proposed collection of information (see below);
How the quality, utility, and clarity of the information to be
collected may be enhanced;
How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and
Estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information.
The collection of information in this proposed regulation is
in §1.417(e)- 1( b)(3)(iv)(B) and §1.417(e)-1(b)(3)(v)(A). This
collection of information is required by the IRS to ensure that the
participant and the participant's spouse consent to a form of
distribution from a qualified retirement plan that may result in
reduced periodic payments. This information will be used by the plan
administrator to verify that the required consent has been given.
The collection of information is required to obtain a benefit. The
respondents are individuals who are entitled to receive certain
types of distributions from a qualified retirement plan or who are
married to individuals entitled to receive certain types of
distributions from a qualified retirement plan.
Taxpayers provide the information to administrators of
qualified retirement plans when a distribution with a retroactive
annuity starting date is elected.
Estimated total annual reporting burden: 12,500 hours
Estimated average annual burden hours per respondent: 0.25
hours.
Estimated number of respondents: 50,000.
The estimated annual frequency of responses is on occasion.
An agency may not conduct or sponsor, and a person is not
required to respond to, a collection of information unless it
displays a valid control number assigned by the Office of Management
and Budget.
Books or records relating to a collection of information must
be retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by 26
U.S.C. 6103. Background
This document contains proposed amendments to 26 CFR Part 1
under section 417(a)(7) of the Internal Revenue Code (Code). Section
401(a)(11) provides that, subject to certain exceptions, all
distributions from a qualified plan must be made in the form of a
qualified joint and survivor annuity (QJSA). One such exception is
provided in section 417, which allows a participant to elect to
waive the QJSA in favor of another form of distribution. Section
417(a)(2) provides that, for the waiver to be valid, the
participant's spouse must consent to the waiver. Section 417(a)(3)
(A) requires a qualified plan to provide to each participant, within
a reasonable period of time before the annuity starting date, a
written explanation (QJSA explanation) that describes the QJSA, the
right to waive the QJSA and the rights of the participant's spouse.
Under section 417(d), a participant's spouse who has not been
married to the participant throughout the 1-year period preceding
the annuity starting date is not required to be treated as the
spouse for purposes of entitlement to the QJSA. Section 417(a)(2)(B)
provides that spousal consent is not required to waive the QJSA if
it is established to the satisfaction of a plan representative that
such consent may not be obtained because there is no spouse, because
the spouse cannot be located, or because of such other circumstances
as the Secretary may by regulations prescribe.
Section 417(a)(7), which was added to the Code by section
1451(a) of the Small Business Job Protection Act of 1996, Public Law
104-188 (110 Stat. 1755) (SBJPA), creates an exception to the rules
of section 417(a)(3)(A), effective for plan years beginning after
December 31, 1996. Section 417(a)(7)(A) provides that,
notwithstanding any other provision of section 417(a), a plan may
furnish the QJSA explanation after the annuity stating date, as long
as the applicable election period is extended for at least 30 days
after the date on which the explanation is furnished. Thus, section
417(a)(7)(A) allows the annuity starting date to be a date that is
earlier than the date the QJSA explanation is provided, thereby
allowing the retroactive payment of benefits that are attributable
to the period before the QJSA explanation is provided. Section
417(a)(7)(A)(ii) provides that the Secretary may limit the
application of the provision permitting the selection of a
retroactive annuity starting date by regulations, except that the
regulations may not limit the period of time by which the annuity
starting date precedes the furnishing of the written explanation
other than by providing that the retroactive annuity starting date
may not be earlier than termination of employment.
Section 205(c)(8) of the Employee Retirement Income Security
Act of 1974, Public Law 93-406 (88 Stat. 829) (ERISA), provides a
parallel rule to section 417(a)(7) of the Code that applies under
Title I of ERISA, and authorizes the Secretary of the Treasury to
issue regulations limiting the application of the general rule.
Thus, Treasury regulations issued under section 417(a)(7) of the
Code apply as well for purposes of section 205(c)(8) of ERISA.
On December 18, 1998, final regulations were published in the
Federal Register (63 FR 70009) which amended §1.417(e)-1(b)(3)(ii)
of the Income Tax Regulations, relating to the timing for the QJSA
explanation and the participant waiver of a QJSA form of
distribution. The regulations finalized an earlier set of proposed
regulations that were issued in 1995. The regulations specified that
the QJSA explanation must be provided before the annuity starting
date, except as otherwise provided by section 417(a)(7) for plan
years beginning after December 31, 1996, but the regulations did not
further address section 417(a)(7). Explanation of Provisions
In accordance with section 417(a)(7)(A), these proposed
regulations would provide that the QJSA explanation may be furnished
on or after the annuity starting date under certain circumstances.
The proposed regulations refer to the annuity starting date in such
cases as the "retroactive annuity starting date", define how
payments are made in the case of a retroactive annuity starting
date, and set conditions for the use of retroactive annuity starting
dates.
Under the proposed regulations, a retroactive annuity starting
date could be used only if the plan provides for it and the
participant elects to use the retroactive annuity starting date. The
election under the proposed regulations would place the participant
in approximately the same situation he or she would have been in had
benefit payments actually commenced on the retroactive annuity
starting date. Accordingly, the proposed regulations would provide
that future periodic payments for a participant who elects a
retroactive annuity starting date must be the same as the periodic
payments that would have been paid to the participant had payments
actually commenced on the retroactive annuity starting date and that
the participant must also receive a make-up amount to reflect the
missed payments (with an appropriate adjustment for interest from
the date the payments would have been made to the date of actual
payment).
In addition, because the purpose of a retroactive annuity
starting date is to place the participant in approximately the same
situation that he or she would have been in had benefits commenced
on the retroactive date, the retroactive benefit payments would be
required to be based upon the terms of the plan in effect as of the
retroactive annuity starting date (taking into account plan
amendments executed after the retroactive annuity starting date, but
made effective on or before that date). Accordingly, the retroactive
annuity starting date could not be earlier than the date the
participant could have started receiving benefits if the payments
had commenced at the earliest date permitted under the terms of the
plan (e.g., the retroactive annuity starting date could not be
before the earlier of the date of the participant's termination of
employment or attainment of normal retirement age), and the amount
of the benefit must satisfy sections 415 and 417 as of the
retroactive annuity starting date.
These proposed regulations would not require plans to provide
for a retroactive annuity starting date. Instead, plans could
continue to provide that the QJSA explanation is to be provided
before the annuity starting date under the rules of section 417(a)
without regard to section 417(a)(7)(A). Moreover, if a plan is
amended to provide for a retroactive annuity starting date, the plan
could impose additional restrictions on availability not imposed
under these proposed regulations, provided that the additional
restrictions did not violate any of the rules applicable to
qualified plans. For example, plans that generally provide benefit
options that include annuities and lump sum payments could provide
that retroactive annuity starting dates are available only for
participants who elect annuities.
These proposed regulations make it clear that the notice,
consent, and election rules of section 417(a)(1), (2), and (3), and
the regulations thereunder, would apply to the retroactive payment
of benefits but with several modifications. These modifications
generally reflect the fact that the existing timing rules relating
to notice and consent are generally tied to an annuity starting date
that is after the furnishing of the QJSA explanation. 1
Section 417(a)(7)(A) specifically permits the QJSA
explanation to be made after the annuity starting date and modifies
the participant election period in these situations. These
regulations would make a comparable adjustment for the timing rules
applicable to spousal consent by providing generally that, for
retroactive payments under section
1 For example, section 417(a)(1) provides that a participant
may elect to waive the QJSA within the "applicable election period"
which is defined by section 417(a)(6) as the 90-day period ending on
the annuity starting date. Similarly, §1.417(e)- 1(b)(3)(i) provides
that the written consent of the plan participant and the
participant's spouse must be made no more than 90 days before the
annuity starting date. Also, §1.417(e)-1(b)(3)(ii) provides that the
QJSA explanation must generally be provided no less than 30 days and
no more than 90 days before the annuity starting date. 417(a)(7),
the first date of actual payment is substituted for the annuity
starting date in applying the timing rules for notice and consent.
These modifications are intended to ensure that the notice and
election are generally contemporaneous with the commencement of
benefits, but the modifications recognize the need for flexibility
in the timing to take into account administrative delays. In
furtherance of that goal, these proposed regulations would modify
the general timing rule applicable to the furnishing of notices, and
to participant elections and spousal consent. The proposed
regulations would provide that the participant's election to waive
the QJSA under section 417(a)(1)(A)(i) and the spouse's consent
under section 417(a)(2) must generally be made before the annuity
starting date, but permits a later election if the distribution
commences no more than 90 days after the QJSA explanation required
by section 417(a)(3)(A) is furnished to the participant. This
modification would apply without regard to the retroactivity of
annuity starting dates, but would include an exception for
reasonable administrative delay in the distribution of benefits.
Pursuant to the regulatory authority provided in section
417(a)(7)(A)(ii), these proposed regulations include a special
spousal consent rule in addition to those rules applicable under
section 417(a). Under this special rule, if the spouse's survivor
annuity under a QJSA with an annuity starting date after the date
the QJSA explanation was provided would be greater than the spouse's
survivor annuity pursuant to the participant's election of a
retroactive annuity starting date, the participant could not elect a
retroactive annuity starting date unless the participant's spouse
(determined at the time distributions actually commence) consents to
the distribution. This special rule applies even if the form of
benefit that the participant elects as of the retroactive annuity
starting date is a QJSA. Thus, for example, where a QJSA that begins
after the QJSA explanation is furnished would provide $1,000 monthly
to the participant with a survivor annuity of $500 monthly to the
spouse, and a QJSA with a retroactive annuity starting date would
provide $900 monthly to the participant with a survivor annuity of
$450 monthly to the spouse, together with a $20,000 make-up payment
to the participant, the spouse would be required to consent in order
for the participant to elect the retroactive annuity starting date.
Spousal consent under this special rule would not be required in
this example if the spouse's survivor annuity under the retroactive
annuity starting date election is at least $500 per month.
These proposed regulations would also provide that, pursuant
to section 417(a)(2)(B), the consent of the participant's spouse as
of the retroactive annuity starting would not be required if that
spouse is not the participant's spouse as of the date distributions
commence, unless otherwise provided in a qualified domestic
relations order (as defined in section 414(p)),
The proposed regulations would impose an additional condition
on the availability of a retroactive annuity starting date,
regarding the permissible amount of the distribution under sections
417(e)(3) (if applicable) and 415. To satisfy this condition, the
distribution would be required to be adjusted, if necessary, to
satisfy the requirements of sections 417(e)(3) (if applicable) and
415 if the date the distribution commences is substituted for the
annuity starting date. Proposed Effective Date
These regulations are proposed to be applicable for plan years
beginning on or after January 1, 2002.
Special Analyses
It has been determined that this notice of proposed rulemaking
is not a significant regulatory action as defined in Executive Order
12866. Therefore, a regulatory assessment is not required. It is
hereby certified that these regulations will not have a significant
economic impact on a substantial number of small entities. This
certification is based on the fact that the regulations require the
collection of plan participants' written elections requesting
qualified retirement plan distributions, and written spousal consent
to these distributions, under limited circumstances. It is
anticipated that most small businesses affected by these regulations
will be sponsors of qualified retirement plans. Since these written
participant elections and written spousal consents are required to
be collected only for certain distributions, and since, in the case
of a small plan, there will be relatively few distributions per year
(and even fewer that are subject to these requirements), small plans
that provide distributions for which this collection of information
is required will only have to collect a small number of participant
elections and spousal consents as a result of these regulations.
Accordingly, a Regulatory Flexibility Analysis is not required.
Pursuant to section 7805(f) of the Code, this notice of proposed
rulemaking will be submitted to the Chief Counsel for Advocacy of
the Small Business Administration for comment on its impact on small
business.
Comments and Requests for a Public Hearing
Before these proposed regulations are adopted as final
regulations,
consideration will be given to any written comments (a signed
original and 8 copies) or electronic comments that are submitted
timely to the IRS. The IRS and Treasury request comments on the
clarity of the proposed rules and how they can be made easier to
understand. All comments will be available for public inspection and
copying. A public hearing may be scheduled if requested in writing
by any person that timely submits written comments. If a public
hearing is scheduled, notice of the date, time, and place for the
public hearing will be published in the Federal Register. Drafting
Information
The principal authors of these regulations are Robert M. Walsh
and Linda S. F. Marshall, Office of Division Counsel/Associate Chief
Counsel (Tax Exempt and Government Entities). However, other
personnel from the IRS and Treasury participated in their
development. List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements
Proposed Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as
follows: PART 1 -- INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to
read, in part, as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 2. Section 1.417(e)-1 is amended by:
1. Revising paragraph (b)(3)(i).
2. Revising paragraph (b)(3)(ii) introductory text.
3. Revising paragraph (b)(3)(ii)(C).
4. Redesignating paragraphs (b)(3)(iii) and (b)(3)(iv) as
paragraphs (b)(3)(viii) and (b)(3)(ix), respectively.
5. Adding new paragraphs (b)(3)(iii) through (b)(3)(vii).
The additions and revisions read as follows: §1.417(e)-1
Restrictions and valuations of distributions from plans subject to
sections 401(a)(11) and 417.
* * * * *
(b)* * *
(3)* * *
(i) Written consent of the participant and the participant's
spouse to the distribution must be made not more than 90 days before
the annuity starting date, and, except as otherwise provided in
paragraphs (b)(3)(iii) and (b)(3)(iv) of this section, no later than
the annuity starting date.
(ii) A plan must provide participants with the written
explanation of the QJSA required by section 417(a)(3) no less than
30 days and no more than 90 days before the annuity starting date,
except as provided in paragraph (b)(3)(iv) of this section regarding
retroactive annuity starting dates. However, if the participant,
after having received the written explanation of the QJSA,
affirmatively elects a form of distribution and the spouse consents
to that form of distribution (if necessary), a plan will not fail to
satisfy the requirements of section 417(a) merely because the
written explanation was provided to the participant less than 30
days before the annuity starting date, provided that the following
conditions are met:
* * * * *
(C) The annuity starting date is after the date that the
explanation of the QJSA is provided to the participant.
* * * * *
(iii) The plan may permit the annuity starting date to be
before the date that any affirmative distribution election is made
by the participant (and before the date that distribution is
permitted to commence under paragraph (b)(3)(ii)(D) of this
section), provided that, except as otherwise provided in paragraph
(b)(3)(vii) of this section regarding administrative delay,
distributions commence not more than 90 days after the explanation
of the QJSA is provided.
(iv) Retroactive annuity starting dates. (A) Notwithstanding
the requirements of paragraphs (b)(3)(i) and (ii) of this section,
pursuant to section 417(a)(7), a defined benefit plan is permitted
to provide benefits based on a retroactive annuity starting date if
the requirements described in paragraph (b)(3)(v) of this section
are satisfied. A defined benefit plan is not required to provide for
retroactive annuity starting dates. If a plan does provide for a
retroactive annuity starting date, it may impose conditions on the
availability of a .Ltroactive annuity starting date in addition to
those imposed by paragraph (b)(3)(v) of this section, provided that
imposition of those additional conditions does not violate any of
the rules applicable to qualified plans. For example, a plan that
includes a single sum payment as a benefit option may limit the
election of a retroactive annuity starting date to those
participants who do not elect the single sum payment. A defined
contribution plan is not permitted to have a retroactive annuity
starting date.
(B) For purposes of this section, a "retroactive annuity
starting date" is an annuity starting date affirmatively elected by
a participant that occurs on or before the date the written
explanation required by section 417(a)(3) is provided to the
participant. In order for a plan to treat a participant as having
elected a retroactive annuity starting date, future periodic
payments with respect to a participant who elects a retroactive
annuity starting date must be the same as the future periodic
payments, if any, that would have been paid with respect to the
participant had payments actually commenced on the retroactive
annuity starting date. The participant must receive a make-up
payment to reflect any missed payment or payments for the period
from the retroactive annuity starting date to the date of the actual
make-up payment (with an appropriate adjustment for interest from
the date the missed payment or payments would have been made to the
date of the actual make-up payment). Thus, the benefit determined as
of the retroactive annuity starting date must satisfy the
requirements of sections 417(e)(3), if applicable, and section 415
with the applicable interest rate and applicable mortality table
determined as of that date. Similarly, a participant is not
permitted to elect a retroactive annuity starting date that precedes
the date upon which the participant could have otherwise started
receiving benefits (e.g., the earlier of the participant's
termination of employment or the participant's normal retirement
age) under the terms of the plan in effect as of the retroactive
annuity starting date. A plan does not fail to treat a participant
as having elected a retroactive annuity starting date as described
in this paragraph (b)(3)(iv)(B) merely because the distributions are
adjusted to the extent necessary to satisfy the requirements of
paragraph (b)(3)(v)(B) of this section relating to sections 415 and
417(e)(3).
(C) If the participant's spouse as of the retroactive annuity
starting date would not be the participant's spouse determined as if
the date distributions commence were the participant's annuity
starting date, consent of that former spouse is not needed to waive
the QJSA with respect to the retroactive annuity starting date,
unless otherwise provided under a qualified domestic relations order
(as defined in section 414(p)).
(D) A distribution payable pursuant to a retroactive annuity
starting date election is treated as excepted from the present value
requirements of paragraph (d) of this section under paragraph (d)(6)
of this section if the distribution form would have been described
in paragraph (d)(6) of this section had the distribution actually
commenced on the retroactive annuity starting date.
(v) Requirements applicable to retroactive annuity starting
dates. A distribution is permitted to have a retroactive annuity
starting date with respect to a participant's benefit only if the
following requirements are met:
(A) The participant's spouse (including an alternate payee
who is treated as the spouse under a qualified domestic relations
order (QDRO), as defined in section 414(p)), determined as if the
date distributions commence were the participant's annuity starting
date, consents to the distribution in a manner that would satisfy
the requirements of section 417(a)(2). The spousal consent
requirement of this paragraph (b)(3)(v)(A) is satisfied if such
spouse consents to the distribution under paragraph (b)(2)(i) of
this section. The spousal consent requirement of this paragraph (b)
(3)(v)(A) does not apply if the amount of such spouse's survivor
annuity payments under the retroactive annuity starting date
election is no less than the amount that the payments to such spouse
would have been under a QJSA with an annuity starting date after the
date that the explanation was provided.
(B) The distribution (including appropriate interest
adjustments) provided based on the retroactive annuity starting date
would satisfy the requirements of sections 417(e)(3), if applicable,
and section 415 if the date the distribution commences is
substituted for the annuity starting date for all purposes,
including for purposes of determining the applicable interest rate
and the applicable mortality table.
(vi) Timing of notice and consent requirements in the case of
retroactive annuity starting dates. In the case of a retroactive
annuity starting date, the date of the first actual payment of
benefits based on the retroactive annuity starting date is
substituted for the annuity starting date for purposes of satisfying
the timing requirements for giving consent and providing an
explanation of the QJSA provided in paragraphs (b)(3)(i) and (ii) of
this section, except that the substitution does not apply for
purposes of paragraph (b)(3)(iii) of this section. Thus, the written
explanation required by section 417(a)(3)(A) must generally be
provided no less than 30 days and no more than 90 days before the
date of the first payment of benefits and the election to receive
the distribution must be made after the written explanation is
provided and on or before the date of the first payment. Similarly,
the written explanation may also be provided less than 30 days prior
to the first payment of benefits if the requirements of paragraph
(b)(3)(ii) of this section would be satisfied if the date of the
first payment is substituted for the annuity starting date.
(vii) Administrative delay. A plan will not fail to satisfy
the 90-day timing requirements of paragraphs (b)(3)(iii) and (vi) of
this section merely because, due solely to administrative delay, a
distribution commences more than 90 days after the written
explanation of the QJSA is provided to the participant.
* * * * *
Robert E. Wenzel,
Deputy Commissioner of Internal Revenue
SEARCH:
You can search the entire Tax Professionals section, or all of Uncle Fed's Tax*Board. For a more focused search, put your search word(s) in quotes.
2001 Regulations Main | IRS Regulations Main | Home
|
