[Federal Register: July 8, 2003 (Volume 68, Number 130)]
[Proposed Rules]
[Page 40581-40583]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08jy03-22]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-112039-03]
RIN 1545-BC35
Elimination of Forms of Distribution in Defined Contribution
Plans
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains proposed regulations that would modify
the circumstances under which certain forms of distribution previously
available are permitted to be eliminated from qualified defined
contribution plans. These proposed regulations affect qualified
retirement plan sponsors, administrators, and participants. This
document also provides notice of a public hearing on these proposed
regulations.
DATES: Written and electronic comments and requests for a public
hearing must be received by October 6, 2003.
ADDRESSES: Send submissions to: CC:PA:RU (REG-112039-03), 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:PA:RU (REG-112039-03),
Courier's Desk, Internal Revenue
[[Page 40582]]
Service, 1111 Constitution Avenue NW., Washington, DC. Alternatively,
taxpayers may submit comments electronically directly to the IRS
Internet site at: www.irs.gov/regs.
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Vernon S.
Carter, 202-622-6060 (not a toll-free number); concerning submissions
or hearing requests, Guy Traynor, 202-622-7180 (not a toll-free
number).
SUPPLEMENTARY INFORMATION:
Explanation of Provisions
This document contains proposed amendments to 26 CFR part 1 under
section 411(d)(6) of the Internal Revenue Code of 1986 (Code) as
amended by the Economic Growth and Tax Relief Reconciliation Act of
2001 (EGTRRA) (115 Stat. 117). Section 411(d)(6)(A) of the Code
generally provides that a plan will not be treated as satisfying the
requirements of section 411 if the accrued benefit of a participant is
decreased by a plan amendment. Section 411(d)(6)(B) prior to amendment
by EGTRRA provided that an amendment is treated as reducing an accrued
benefit if, with respect to benefits accrued before the amendment is
adopted, the amendment has the effect of either eliminating or reducing
an early retirement benefit or a retirement-type subsidy, or, except as
provided by regulations, eliminating an optional form of benefit.
The IRS published TD 8900 in the Federal Register on September 6,
2000 (65 FR 53901). TD 8900, which amended Sec. 1.411(d)-4 of the
Income Tax Regulations, added paragraph (e) of Q&A-2 to provide for
additional circumstances under which a defined contribution plan can be
amended to eliminate or restrict a participant's right to receive
payment of accrued benefits under certain optional forms of benefit.
Section 1.411(d)-4, Q&A-2(e)(1) provides that a defined
contribution plan may be amended to eliminate or restrict a
participant's right to receive payment of accrued benefits under a
particular optional form of benefit without violating the section
411(d)(6) anti-cutback rules if, once the plan amendment takes effect
for a participant, the alternative forms of payment that remain
available to the participant include payment in a single-sum
distribution form that is ``otherwise identical'' to the eliminated or
restricted optional form of benefit. The amendment cannot apply to a
participant for any distribution with an annuity starting date before
the earlier of the 90th day after the participant receives a summary
that reflects the plan amendment and that satisfies Department of
Labor's requirements for a summary of material modifications under 29
CFR 2520.104b-3, or the first day of the second plan year following the
plan year in which the amendment is adopted. Section Sec. 1.411(d)-4,
Q&A-2(e)(2) provides that a single-sum distribution form is ``otherwise
identical'' to the optional form of benefit that is being eliminated or
restricted only if it is identical in all respects (or would be
identical except that it provides greater rights to the participant),
except for the timing of payments after commencement. A single-sum
distribution form is not ``otherwise identical'' to a specified
installment form of benefit if the single-sum form:
[sbull] Is not available for distribution on any date on which the
installment form could have commenced;
[sbull] is not available in the same medium as the installment
form; or
[sbull] imposes any additional condition of eligibility.
Further, an otherwise identical distribution form need not retain any
rights or features of the eliminated or restricted optional form of
benefit to the extent those rights or features would not be protected
from elimination under the anti-cutback rules. The single-sum
distribution form would not, however, be disqualified from being an
otherwise identical distribution form if the single-sum form provides
greater rights to participants than did the eliminated or restricted
optional form of benefits.
Section 645(a)(1) of EGTRRA revised section 411(d)(6) in a manner
that is similar to Sec. 1.411(d)-4, Q&A-2(e), but without the advance
notice condition. Section 411(d)(6)(E) of the Code provides that,
except to the extent provided in regulations, a defined contribution
plan is not treated as reducing a participant's accrued benefit where a
plan amendment eliminates a form of distribution previously available
under the plan if a single-sum distribution is available to the
participant at the same time as the form of distribution eliminated by
the amendment, and the single-sum distribution is based on the same or
greater portion of the participant's account as the form of
distribution eliminated by the amendment.
To reflect the addition of section 411(d)(6)(E) by EGTRRA, these
proposed regulations would amend Sec. 1.411(d)-4, Q&A-2(e). Under
these amendments, the regulations would retain the rules under which a
defined contribution plan may be amended to eliminate or restrict a
participant's right to receive payment of accrued benefits under a
particular optional form of benefit without violating the section
411(d)(6) anti-cutback rules if, once the plan amendment takes effect
for a participant, the alternative forms of payment that remain
available to the participant include payment in a single-sum
distribution. However, these proposed regulations would remove the 90-
day notice condition previously applicable to these plan amendments.\1\
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\1\ The Department of Labor has advised Treasury and the IRS
that it should be noted that plans covered by Title I of ERISA will
continue to be subject to the requirement under Title I that plan
amendments be described in a timely summary of material
modifications (SMM) or a revised summary plan description (SPD) to
be distributed to plan participants and beneficiaries in accordance
with applicable Department of Labor disclosure rules (see 29 CFR
2520.104b-3).''
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Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR
47713), the Secretary of the Treasury has interpretive jurisdiction
over the subject matter addressed in these regulations for purposes of
the Employee Retirement Income Security Act of 1974 (ERISA), as well as
the Code. Section 204(g)(2) of ERISA, as amended by EGTRRA, provides a
parallel rule to section 411(d)(6)(E) of the Code that applies under
Title I of ERISA, and authorizes the Secretary of the Treasury to
provide exception to this parallel ERISA requirement. Therefore, these
regulations apply for purposes of the parallel requirements of sections
204(g)(2) of ERISA, as well as for section 411(d)(6)(E) of the Code.
Effective Date and Applicability Date
The proposed regulations are proposed to apply on the date of
publication of final regulations in the Federal Register.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866.
Therefore, a regulatory assessment is not required. It also has been
determined that section 553(b) of the Administrative Procedure Act (5
U.S.C. chapter 5) does not apply to these regulations, and because the
regulation does not impose a collection of information on small
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not
apply. 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.
[[Page 40583]]
Drafting Information
The principal author of these regulations is Vernon S. Carter of
the Office of the 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 Parts 1
Income taxes, Reporting and recordkeeping requirements.
Amendments to the Regulations
Accordingly, 26 CFR part 1 is proposed to be amended as follows:
Paragraph 1. The authority citation for part 1 is amended to read
in part as follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.411(d)-4, Q&A-2(e) also issued under 26 U.S.C.
411(d)(6)(E). * * *
Par. 2. Section 1.411(d)-4, Q&A-2(e) is revised to read as follows:
Sec. 1.411(d)-4 Section 411(d)(6) protected benefits.
* * * * *
A-2: * * *
(e) Permitted plan amendments affecting alternative forms of
payment under defined contribution plans--(1) General rule. A defined
contribution plan does not violate the requirements of section
411(d)(6) merely because the plan is amended to eliminate or restrict
the ability of a participant to receive payment of accrued benefits
under a particular optional form of benefit if, after the plan
amendment is effective with respect to the participant, the alternative
forms of payment available to the participant include payment in a
single-sum distribution form that is otherwise identical to the
optional form of benefit that is being eliminated or restricted.
(2) Otherwise identical single-sum distribution. For purposes of
this paragraph (e), a single-sum distribution form is otherwise
identical to an optional form of benefit that is eliminated or
restricted pursuant to paragraph (e)(1) of this Q&A-2 only if the
single-sum distribution form is identical in all respects to the
eliminated or restricted optional form of benefit (or would be
identical except that it provides greater rights to the participant)
except with respect to the timing of payments after commencement. For
example, a single-sum distribution form is not otherwise identical to a
specified installment form of benefit if the single-sum distribution
form is not available for distribution on the date on which the
installment form would have been available for commencement, is not
available in the same medium of distribution as the installment form,
or imposes any condition of eligibility that did not apply to the
installment form. However, an otherwise identical distribution form
need not retain rights or features of the optional form of benefit that
is eliminated or restricted to the extent that those rights or features
would not be protected from elimination or restriction under section
411(d)(6) or this section.
(3) Example. The following example illustrates the application of
this paragraph (e):
Example. (i) P is a participant in Plan M, a qualified profit-
sharing plan with a calendar plan year that is invested in mutual
funds. The distribution forms available to P under Plan M include a
distribution of P's vested account balance under Plan M in the form
of distribution of various annuity contract forms (including a
single life annuity and a joint and survivor annuity). The annuity
payments under the annuity contract forms begin as of the first day
of the month following P's severance from employment (or as of the
first day of any subsequent month, subject to the requirements of
section 401(a)(9)). P has not previously elected payment of benefits
in the form of a life annuity, and Plan M is not a direct or
indirect transferee of any plan that is a defined benefit plan or a
defined contribution plan that is subject to section 412.
Distributions on the death of a participant are made in accordance
with plan provisions that comply with section 401(a)(11)(B)(iii)(I).
On May 2, 2004, Plan M is amended so that, after the amendment is
effective, P is no longer entitled to any distribution in the form
of the distribution of an annuity contract. However, after the
amendment is effective, P is entitled to receive a single-sum cash
distribution of P's vested account balance under Plan M payable as
of the first day of the month following P's severance from
employment (or as of the first day of any subsequent month, subject
to the requirements of section 401(a)(9)). The amendment does not
apply to P if P elects to have annuity payments begin before July 1,
2004.
(ii) Plan M does not violate the requirements of section
411(d)(6) (or section 401(a)(11)) merely because, as of July 1,
2004, the plan amendment has eliminated P's option to receive a
distribution in any of the various annuity contract forms previously
available.
(4) Effective date. This paragraph (e) is applicable on the date of
publication of final regulations in the Federal Register.
* * * * *
Robert E. Wenzel,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 03-17089 Filed 7-7-03; 8:45 am]
BILLING CODE 4830-01-P