Section 401(a) provides rules for qualified pension plans, profit-sharing plans, and stock bonus plans. Section 1.401-1(a)(2) of the Income Tax Regulations provides that a qualified pension plan (i.e., a qualified defined benefit plan or money purchase pension plan) is a definite written program and arrangement that is communicated to employees and that is established and maintained by an employer to provide for the livelihood of the employees or their beneficiaries after the retirement of such employees through the payment of benefits. Under § 1.401-1(b)(1)(i), a qualified pension plan must be established and maintained by an employer primarily to provide systematically for the payment of definitely determinable benefits for employees over a period of years, usually for life, after retirement. Following the enactment of the Employee Retirement Income Security Act of 1974 (ERISA), Public Law 93-406 (88 Stat. 829), the regulations under § 401(a) were modified to provide that § 1.401-1(b)(1)(i) continues to apply, except as otherwise provided. See § 1.401(a)-1(b)(1)(i). Accordingly, a qualified pension plan is generally not permitted to pay benefits before retirement. See also Rev. Rul. 56-693, 1956-2 C.B. 282, as modified by Rev. Rul. 60-323, 1960-2 C.B. 148.

A notice of proposed rulemaking (REG-114726-04, 2004-2 C.B. 857) under § 401(a) was published in the Federal Register (69 FR 65108) (the proposed regulations) on November 10, 2004. The proposed regulations would permit a qualified pension plan to make in-service distributions to a participant before normal retirement age under a bona fide phased retirement program. In addition, the proposed regulations would modify § 1.401(a)-1(b)(1) by permitting a qualified pension plan to make in-service distributions to a participant upon the participant’s attainment of normal retirement age and by clarifying that a plan’s normal retirement age cannot be set so low as to be a subterfuge for avoiding the requirements of § 401(a). On March 14, 2005, the IRS held a public hearing on the proposed regulations. Written comments responding to the proposed rulemaking were also received.

Section 401(a)(36), as added by section 905(b) of PPA ’06, provides that, for plan years beginning after December 31, 2006, a pension plan does not fail to qualify under § 401(a) solely because the plan provides that a distribution may be made to an employee who has attained age 62 and who has not separated from employment at the time of the distribution.

Section 401(a)(7) provides that a plan must satisfy the requirements of § 411.^[3] Section 411(a) provides that a qualified plan must provide that an employee’s right to his or her normal retirement benefit is nonforfeitable upon the attainment of normal retirement age, and also provides vesting requirements with respect to an employee’s accrued benefit. For purposes of a defined benefit plan, § 411(a)(7) generally defines the term “accrued benefit” as an employee’s accrued benefit determined under the plan and expressed in the form of an annual benefit commencing at normal retirement age. Under § 411(a)(9), the term “normal retirement benefit” is defined as the greater of the early retirement benefit under the plan or the benefit under the plan commencing at normal retirement age.

Under § 411(a), a defined benefit plan must satisfy one of the three anti-backloading rules described §§ 411(b)(1)(A), 411(b)(1)(B), and 411(b)(1)(C). These anti-backloading rules govern the minimum rate at which a participant’s accrued benefit accrues. These rules are designed to ensure that the minimum vesting rules of § 411(a) are not circumvented through a plan formula under which accruals are inappropriately deferred. In addition, under § 411(b)(1)(G), a defined benefit plan is not permitted to reduce a participant’s accrued benefit on account of any increase in the participant’s age or service, and under § 411(b)(1)(H), a defined benefit plan is not permitted to cease a participant’s benefit accrual, or reduce the rate of an employee’s benefit accrual, because of the attainment of any age.

Most of the § 411 requirements outlined above protect a participant’s accrued benefit. Section 411(d)(6)(A) generally provides that a plan is treated as not satisfying the requirements of § 411 if the accrued benefit of a participant is decreased by a plan amendment. In addition, § 411(d)(6)(B) provides that a plan amendment that has the effect of eliminating or reducing an early retirement benefit or a retirement-type subsidy, or eliminating an optional form of benefit, with respect to benefits attributable to service before the amendment is treated as impermissibly reducing accrued benefits.

Sections 1.411(d)-3 and 1.411(d)-4 provide rules relating to § 411(d)(6) protected benefits. Section 1.411(d)-3(g) distinguishes among the types of benefits protected under § 411(d)(6). A § 411(d)(6) protected early retirement benefit is defined as the right to commence distribution of a retirement-type benefit at a particular date after severance from employment with the employer and before normal retirement age. Generally, under these regulations, a § 411(d)(6) protected retirement-type subsidy, such as a subsidized early retirement benefit and a subsidized qualified joint and survivor annuity, is the excess of the actuarial present value of a retirement-type benefit over the actuarial present value of the accrued benefit commencing at normal retirement age or at the actual commencement date. A plan provision that permits a participant to receive an in-service distribution is an optional form of benefit that is protected under § 411(d)(6), but is not an early retirement benefit. See §§ 1.411(d)-3(g)(6) and 1.411(d)-4, Q&A-1(a)(3), Q&A-1(b)(1), and Q&A-2(a)(1).