[Federal Register Volume 60, Number 65 (Wednesday, April 5, 1995)]
[Rules and Regulations]
[Pages 17216-17221]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8229]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 8591]
RIN 1545-AT28
Valuation of Plan Distributions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Temporary regulations.
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SUMMARY: This document contains temporary regulations that provide
guidance to employers in determining the present value of an employee's
benefit under a qualified defined benefit pension plan, for purposes of
the applicable consent rules and for purposes of determining the amount
of a distribution made in any form other than in certain nondecreasing
annuity forms. These temporary regulations are issued to reflect
changes to the applicable law made by the Retirement Protection Act of
1994 (RPA '94), which is part of the Uruguay Round Agreements Act of
1994. RPA '94 amended the law to change the interest rate, and to
specify the mortality table, for the purposes described above. The text
of these temporary regulations also serves as the text of the proposed
regulations set forth in the notice of proposed rulemaking on this
subject in the Proposed Rules section of this issue of the Federal
Register.
DATES: These regulations are effective April 5, 1995.
These regulations apply to plan years beginning after December 31,
1994, except as provided in Sec. 1.417(e)-1T(d)(8) and (9).
FOR FURTHER INFORMATION CONTACT: Linda S. F. Marshall, (202) 622-4606
(not a toll-free number).
SUPPLEMENTARY INFORMATION:
Short Description
The temporary regulations in this document set out rules for
computing the amount of any benefit under a qualified defined benefit
pension plan that is paid in any form other than certain annuity forms.
These temporary regulations reflect changes made to the law in the
Retirement Protection Act of 1994 (RPA '94) Pub. L. 103-465. Under the
new law, if the annuity benefit an employee could receive under the
plan is converted to a different form of benefit, the non-annuity
benefit cannot be less than the value that would be determined using
legally required assumptions regarding life expectancy (mortality
table) and interest rate. This ensures that the non-annuity benefit
will not be less valuable than the annuity benefit.
Under these temporary regulations, the mortality table used under
the new law is the mortality table published by the IRS (currently a
mortality table commonly used by state insurance commissioners). The
interest rate used under the new law is the interest rate on 30-year
Treasury securities, as published by the IRS. These temporary
regulations allow an employer to choose a monthly, quarterly, or annual
period during which the plan's interest rate remains constant, and
allow an [[Page 17217]] employer to determine the rate up to five
months before the period begins.
These temporary regulations provide that, for most pension plans in
place on December 7, 1994, the employer can choose to have the new law
become effective any time between December 8, 1994, and the first day
of the first plan year beginning after December 31, 1999. These
temporary regulations also specify how employers can amend their
pension plans to change the mortality table and interest rate used to
compute the amount of a distribution, without causing any prohibited
reduction in benefits.
Background
This document contains amendments to the Income Tax Regulations (26
CFR Part 1) under section 417(e). Section 417(e) was amended by RPA
'94. These temporary regulations provide guidance related to the
determination of the present value of an employee's benefit under a
qualified defined benefit pension plan in accordance with the rules of
section 417(e)(3).
The rules of section 417(e)(3) are also relevant to the application
of section 411(a)(11) and section 415(b). Section 411(a)(11) provides
that a participant's benefit with a present value that exceeds $3,500
can be immediately distributed to a participant only with the
participant's consent. Under section 411(a)(11)(B), as amended by RPA
'94, the present value of a participant's benefit is calculated using
the rules of section 417(e)(3). Section 415(b) limits the maximum
benefit that can be provided under a qualified defined benefit plan.
Under section 415(b)(2)(E)(ii), as amended by RPA '94, the minimum
interest rate permitted to be used for certain purposes to determine
compliance with the limit under section 415(b) is the applicable
interest rate as defined in section 417(e)(3). Because the rules of
section 417(e)(3) affect the application of sections 411(a)(11)(B) and
415(b)(2)(E)(ii), the guidance provided by these temporary regulations
is relevant to the application of those provisions.
Explanation of Provisions
Section 417(e) restricts the ability of certain qualified
retirement plans to distribute a participant's benefit under the plan
without the consent of the participant and, in many cases, the
participant's spouse. The application of these restrictions is
determined based on the present value of the participant's benefit.
Prior to amendments made by RPA '94, section 417(e)(3) restricted the
interest rate to be used under a plan to calculate the present value of
a participant's benefit, but did not impose any restrictions on the
mortality table to be used for that purpose.
Under Sec. 1.417(e)-1(d), prior to amendment by these temporary
regulations, the interest rate limitations of section 417(e)(3) were
applied in determining whether participant or spousal consent to a
distribution was necessary, in determining the present value of any
accrued benefit, and in determining the amount of many types of
distributions. Further, under those regulations, the present value of
any optional form of benefit could not be less than the present value
of the normal retirement benefit determined in accordance with the
interest rate restrictions of section 417(e)(3). Section 767 of RPA '94
modified section 417(e)(3) to provide that the present value of a
participant's benefit is not less than the present value calculated by
using the applicable mortality table and the applicable interest rate.
Applicable Mortality Table
The applicable mortality table under section 417(e)(3) is defined
as the table prescribed by the Secretary based on the prevailing
commissioners' standard table (described in section 807(d)(5)(A)) used
to determine reserves for group annuity contracts issued on the date as
of which present value is being determined (without regard to any other
subparagraph of section 807(d)(5)). Currently, the prevailing
commissioners' standard table is the 1983 Group Annuity Mortality
Table. See Rev. Rul. 92-19, 1992-1 C.B. 227. These temporary
regulations provide that the applicable mortality table as described
above is to be prescribed by the Commissioner in revenue rulings,
notices or other documents of general applicability. That table is set
forth in Rev. Rul. 95-6, 1995-4 I.R.B. 22.
Applicable Interest Rate
Under section 417(e)(3), the applicable interest rate is defined as
the annual rate of interest on 30-year Treasury securities for the
month before the date of distribution or such other time as the
Secretary may by regulations prescribe. These temporary regulations
provide that the applicable interest rate for a month is the annual
interest rate on 30-year Treasury securities as specified by the
Commissioner for that month. Currently, this interest rate is the
interest rate published in Federal Reserve releases G.13 and H.15 as
the average yield on 30-year Treasury Constant Maturities for the
month. The interest rates for July 1994 through February 1995 are
specified as follows: 7.58 percent for July 1994, 7.49 percent for
August 1994, 7.71 percent for September 1994, 7.94 percent for October
1994, 8.08 percent for November 1994, 7.87 percent for December 1994
(see Notice 95-6, 1995-5 I.R.B. 47), 7.85 percent for January 1995 (see
Notice 95-9, 1995-10 I.R.B. 10), and 7.61 percent for February 1995
(see Notice 95-11, 1995-13 I.R.B. 8). The Commissioner will continue to
publish this interest rate for each month, shortly after the end of the
month.
The interest rate on 30-year Treasury Constant Maturities published
monthly in Federal Reserve releases G.13 and H.15 can also be obtained
by telephone from the Public Information Department of the Federal
Reserve Bank of New York at (212) 720-6130 (not a toll-free number).
Information regarding subscriptions to Federal Reserve releases G.13
and H.15 can be obtained from the Publications Department of the
Federal Reserve Board of Governors at (202) 452-3244 (not a toll-free
number).
Time for Determining Applicable Interest Rate
Section 417(e)(3)(A)(ii)(II) provides that the applicable interest
rate for distributions made during a month is the annual rate of
interest on 30-year Treasury securities for the month before the date
of distribution or such other time as the Secretary may by regulations
prescribe. These temporary regulations permit selection of a monthly,
quarterly or annual period during which the applicable interest rate
remains constant. Permitting selection of such a quarterly or annual
stability period allows plans to offer greater benefit stability than
is provided by the statutory rule, under which the applicable interest
rate changes monthly.
These temporary regulations provide that the applicable interest
rate for the stability period may be determined as the 30-year Treasury
rate for any one of the five calendar months preceding the first day of
the stability period. Permitting this ``lookback'' of up to five months
provides added flexibility and gives plan administrators and
participants more time to comply with applicable notice and election
requirements using the actual interest rate (instead of an estimate).
Thus, a plan may change the applicable interest rate monthly,
quarterly, or annually, and may determine the rate with reference to
one of the five months preceding the month, quarter, or year. For
example, if an employer with a calendar year plan wishes to use the
same interest rate for [[Page 17218]] all distributions in the plan
year (i.e., the annual stability period) and wishes to provide 90 days
for employee notices based on the actual interest rate, the plan can
provide that the applicable interest rate for the entire plan year is
the 30-year Treasury rate specified by the Commissioner for the prior
August (i.e., five calendar months before January 1, the first day of
the plan year).
Effective Dates
These temporary regulations are generally effective for plan years
beginning after December 31, 1994.
Under section 417(e)(3)(B) and these temporary regulations, the
general effective date for the RPA '94 rules is delayed for certain
plans until the first plan year that begins after December 31, 1999,
unless an employer takes earlier action. The delayed effective date
applies to a plan adopted and in effect before December 8, 1994, if the
provisions of the plan in effect on December 7, 1994, met the
requirements of section 417(e)(3) as in effect on December 7, 1994. For
such a plan, the present value of a distribution made before the first
day of the first plan year that begins after December 31, 1999, is
calculated under the provisions of the plan in effect on December 7,
1994, if the annuity starting date for the distribution occurs before
the date a plan amendment applying both the applicable mortality table
and the applicable interest rate rules added by RPA '94 is adopted or,
if later, is made effective.
These temporary regulations restate the rules applicable to plan
years beginning before January 1, 1995, without substantive change.
Those pre-1995 rules also apply to later plan years, to the extent that
the application of the RPA '94 rules is delayed as described above.
In addition, section 767(d)(1) of RPA '94 permits an employer to
elect to accelerate the effective date of the RPA '94 rules, and hence
these temporary regulations, in order to apply the RPA '94 rules to
distributions with annuity starting dates occurring after December 7,
1994, in plan years beginning before January 1, 1995. An employer that
makes a plan amendment applying the applicable mortality table and the
applicable interest rate rules of these regulations is treated as
making this election as of the date the plan amendment is adopted or,
if later, is made effective.
Relationship With Section 411(d)(6)
Section 411(d)(6) provides that a plan does not satisfy the
requirements of section 411 if the accrued benefit of a participant is
decreased by a plan amendment. In general, a plan amendment that
changes the interest rate or the mortality assumptions used for
purposes of determining the amount of any accrued benefit is subject to
section 411(d)(6). Consistent with regulations in effect prior to
amendment by these temporary regulations, these temporary regulations
provide limited section 411(d)(6) relief for certain plan amendments
that change the time for determining the applicable interest rate. A
plan amendment that changes the time for determining the applicable
interest rate will not be treated as violating section 411(d)(6), if
each distribution made until one year after the later of the
amendment's effective date or the amendment's adoption date is
calculated using the time for determining the applicable interest rate
as provided before or after the amendment, whichever produces the
larger benefit. For this purpose, all other plan provisions must be
applied as in effect after the amendment.
For example, assume that a calendar year plan is amended in March
1995, effective July 1, 1995, to change the interest rate used to
determine the present value of plan distributions from the PBGC
interest rate determined as of January 1 of the plan year that contains
the annuity starting date, to the 30-year Treasury security interest
rate for August of the year before the plan year that contains the
annuity starting date. The plan amendment will not be treated as
violating section 411(d)(6) if each distribution with an annuity
starting date after June 30, 1995, and before July 1, 1996, is
calculated using the 30-year Treasury rate for August of the year
before the plan year that contains the annuity starting date, or the
30-year Treasury rate for January of the plan year that contains the
annuity starting date, whichever produces the larger benefit.
Section 767(d)(2) of RPA '94 provides that a participant's accrued
benefit is not considered to be reduced in violation of section
411(d)(6) merely because the benefit is determined in accordance with
the applicable interest rate rules and the applicable mortality table
rules of section 417(e)(3)(A), as amended by RPA '94. These temporary
regulations provide that an interest rate may be eliminated under this
section 411(d)(6) relief rule if that interest rate is the PBGC
interest rate or a rate based on the PBGC interest rate. The PBGC has
advised the Service and Treasury that it has not made any decision at
this time on whether it will continue to publish the relevant interest
rates after the year 2000. Therefore, in amending plans to comply with
these temporary regulations, employers should not rely on the continued
publication of these rates by the PBGC beyond the year 2000.
These temporary regulations further provide that, where a plan
provided for the use of an interest rate not based on the PBGC interest
rate prescribed by section 417(e)(3) as in effect before amendments
made by RPA '94, a plan amendment that eliminates the use of that
interest rate and the associated mortality table may result in a
reduction of a participant's accrued benefit, which would violate the
requirements of section 411(d)(6). These temporary regulations provide
examples of the application of section 411(d)(6) and the special rule
of section 767(d)(2) of RPA '94, including an example illustrating the
use of a phase-in that provides for a smoother transition from the
plan's former terms to the new rules.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 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)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
these temporary regulations will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on their
impact on small business.
Drafting Information
The principal author of these regulations is Linda S. F. Marshall,
Office of the Associate Chief Counsel (Employee Benefits and Exempt
Organizations). However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR part 1 is amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 is amended by adding
an entry in numerical order to read as follows:
Authority: 26 U.S.C. 7805 * * *
[[Page 17219]] Section 1.417(e)-1T also issued under 26 U.S.C.
417(e)(3)(A)(ii)(II).
Par. 2. In Sec. 1.417(e)-1, paragraph (d) is revised to read as
follows:
Sec. 1.417(e)-1 Restrictions and valuations of distributions from
plans subject to sections 401(a)(11) and 417.
* * * * *
(d) Present value requirement. For rules regarding the present
value of a participant's accrued benefit and related matters, see
Sec. 1.417(e)-1T(d).
* * * * *
Par. 3. Sec. 1.417(e)-1T is added to read as follows:
Sec. 1.417(e)-1T Restrictions and valuations of distributions from
plans subject to sections 401(a)(11) and 417 (Temporary).
(a) through (c) [Reserved].
(d) Present value requirement--(1) General rule. A defined benefit
plan must provide that the present value of any accrued benefit and the
amount (subject to sections 411(c)(3) and 415) of any distribution,
including a single sum, must not be less than the amount calculated
using the applicable interest rate described in paragraph (d)(3) of
this section (determined for the month described in paragraph (d)(4) of
this section) and the applicable mortality table described in paragraph
(d)(2) of this section. The present value of any optional form of
benefit cannot be less than the present value of the normal retirement
benefit determined in accordance with the preceding sentence. The same
rules used for the plan under this paragraph (d) must also be used to
compute the present value of the benefit for purposes of determining
whether consent for a distribution is required under paragraph (b) of
this section.
(2) Applicable mortality table. The applicable mortality table is
the mortality table based on the prevailing commissioners' standard
table (described in section 807(d)(5)(A)) used to determine reserves
for group annuity contracts issued on the date as of which present
value is being determined (without regard to any other subparagraph of
section 807(d)(5)), that is prescribed by the Commissioner in revenue
rulings, notices, or other guidance, published in the Internal Revenue
Bulletin (see Sec. 601.601(d)(2)(ii)(b) of this chapter).
(3) Applicable interest rate--(i) General rule. The applicable
interest rate for a month is the annual interest rate on 30-year
Treasury securities as specified by the Commissioner for that month in
revenue rulings, notices or other guidance, published in the Internal
Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b) of this chapter).
(ii) Example. This example illustrates the rules of this paragraph
(d)(3):
Example. Plan A is a calendar year plan. For its 1995 plan year,
Plan A provides that the applicable mortality table is the table
described in Rev. Rul. 95-6, 1995-4 I.R.B. 22, and that the
applicable interest rate for Plan A is the annual interest rate on
30-year Treasury securities as specified by the Commissioner for the
first full calendar month preceding the calendar month that contains
the annuity starting date. Participant P is age 65 in January 1995,
which is the month that contains P's annuity starting date. P has an
accrued benefit payable monthly of $1,000 and has elected to receive
a distribution in the form of a single sum in January 1995. The
annual interest rate on 30-year Treasury securities as published by
the Commissioner for December 1994 is 7.87 percent. To satisfy the
requirements of section 417(e)(3) and this paragraph (d), the single
sum received by P may not be less than $111,351.
(4) Time for determining interest rate--(i) General rule. The
applicable interest rate to be used for a distribution is the rate
determined under paragraph (d)(3) of this section for the applicable
lookback month. The applicable lookback month for a distribution is the
lookback month (as described in paragraph (d)(4)(iii) of this section)
for the month (or other longer stability period described in paragraph
(d)(4)(ii) of this section) that contains the annuity starting date for
the distribution. The time for determining the applicable interest rate
for each participant's distribution must be determined in a consistent
manner that is applied uniformly to all participants in the plan.
(ii) Stability period. A plan must specify the period for which the
applicable interest rate remains constant. This stability period may be
one calendar month, one plan quarter, or one plan year.
(iii) Lookback month. A plan must specify the lookback month that
is used to determine the applicable interest rate. The lookback month
may be the first, second, third, fourth, or fifth full calendar month
preceding the first day of the stability period.
(iv) Additional determination dates. The Commissioner may
prescribe, in revenue rulings, notices or other guidance, published in
the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b)), other
times that a plan may provide for determining the applicable interest
rate.
(v) Example. This example illustrates the rules of this paragraph
(d)(4).
Example. Employer X maintains Plan A, a calendar year plan.
Employer X wishes to amend Plan A so that the applicable interest
rate will remain fixed for each plan quarter, and so that the
applicable interest rate for distributions made during each plan
quarter can be determined approximately 80 days before the beginning
of the plan quarter. To comply with the provisions of this paragraph
(d)(4), Plan A is amended to provide that the applicable interest
rate is the annual interest rate on 30-year Treasury securities as
specified by the Commissioner for the fourth calendar month
preceding the first day of the plan quarter during which the annuity
starting date occurs.
(5) Use of alternative interest rate and mortality table. If a plan
provides for use of an interest rate or mortality table other than the
applicable interest rate or the applicable mortality table, the plan
must provide that a participant's benefit must be at least as great as
the benefit produced by using the applicable interest rate and the
applicable mortality table. For example, where a plan provides for use
of an interest rate of 7% and the UP-1984 Mortality Table (see
Sec. 1.401(a)(4)-12, Standard mortality table) in calculating single-
sum distributions, the plan must provide that any single-sum
distribution is calculated as the greater of the single-sum benefit
calculated using this actuarial basis (i.e., 7% and the UP-1984
Mortality Table) and the single sum calculated using the applicable
interest rate and the applicable mortality table.
(6) Exceptions. This paragraph (d) (other than the provisions
relating to section 411(d)(6) requirements in paragraph (d)(10) of this
section) does not apply to the amount of a distribution under a
nondecreasing annuity payable for a period not less than the life of
the participant or, in the case of a QPSA, the life of the surviving
spouse. A nondecreasing annuity includes a QJSA, QPSA and an annuity
that decreases merely because of the cessation or reduction of Social
Security supplements or qualified disability payments (as defined in
section 411(a)(9)).
(7) Defined contribution plans. Because the accrued benefit under a
defined contribution plan equals the account balance, a defined
contribution plan is not subject to the requirements of this paragraph
(d), even though it is subject to section 401(a)(11).
(8) Effective date--(i) In general. This paragraph (d) is effective
for distributions with annuity starting dates in plan years beginning
after December 31, 1994.
(ii) Optional delayed effective date of Retirement Protection Act
of 1994 (RPA '94)(108 Stat. 5012) rules for plans adopted and in effect
before December 8, 1994. For a plan adopted and in effect before
December 8, 1994, the application of the rules relating to the
[[Page 17220]] applicable mortality table and applicable interest rate
under paragraphs (d) (2) through (4) of this section is delayed to the
extent provided in this paragraph (d)(8)(ii), if the plan provisions in
effect on December 7, 1994, met the requirements of section 417(e)(3)
and Sec. 1.417(e)-1(d) as in effect on December 7, 1994 (as contained
in 26 CFR part 1 revised April 1, 1995). In the case of a distribution
from such a plan with an annuity starting date that precedes the
optional delayed effective date described in paragraph (d)(8)(iv) of
this section, and that precedes the first day of the first plan year
beginning after December 31, 1999, the rules of paragraph (d)(9) of
this section (which generally apply to distributions with annuity
starting dates in plan years beginning before January 1, 1995) apply in
lieu of the rules of paragraphs (d) (2) through (4) of this section.
The interest rate under the rules of paragraph (d)(9) of this section
is determined under the provisions of the plan as in effect on December
7, 1994, reflecting the interest rate or rates published by the Pension
Benefit Guaranty Corporation (PBGC) and the provisions of the plan for
determining the date on which the interest rate is fixed. The above
described interest rate or rates published by the PBGC are those
determined by the PBGC (for the date determined under those plan
provisions) pursuant to the PBGC's methodology under the regulations of
the PBGC for determining the present value of a lump sum distribution
on plan termination under 29 CFR Part 2619 that were in effect on
September 1, 1993 (as contained in 29 CFR part 2619 revised July 1,
1994).
(iii) Optional accelerated effective date of RPA '94 rules. This
paragraph (d) is also effective for a distribution with an annuity
starting date after December 7, 1994, during a plan year beginning
before January 1, 1995, if the employer elects, on or before the
annuity starting date, to make the rules of this paragraph (d)
effective with respect to the plan as of the optional accelerated
effective date described in paragraph (d)(8)(iv) of this section. An
employer is treated as making this election by making the plan
amendments described in paragraph (d)(8)(iv) of this section.
(iv) Determination of delayed or accelerated effective date by plan
amendment adopting RPA '94 rules. The optional delayed effective date
of paragraph (d)(8)(ii) of this section, or the optional accelerated
effective date of paragraph (d)(8)(iii) of this section, whichever is
applicable, is the date plan amendments applying both the applicable
mortality table of paragraph (d)(2) of this section and the applicable
interest rate of paragraph (d)(3) of this section are adopted or, if
later, are made effective.
(9) Plan years beginning before January 1, 1995--(i) Interest rate.
(A) For distributions made in plan years beginning after December 31,
1986, and before January 1, 1995, the following interest rate described
in paragraph (d)(9)(i)(A)(1) or (2) of this section, whichever applies,
is substituted for the applicable interest rate for purposes of this
section--
(1) The rate or rates that would be used by the PBGC for a trusteed
single-employer plan to value the participant's (or beneficiary's)
vested benefit (PBGC interest rate) if the present value of such
benefit does not exceed $25,000; or
(2) 120 percent of the PBGC interest rate, as determined in
accordance with paragraph (d)(9)(i)(A)(1) of this section, if such
present value exceeds $25,000. In no event shall the present value
determined by use of 120 percent of the PBGC interest rate result in a
present value less than $25,000.
(B) The PBGC interest rate may be a series of interest rates for
any given date. For example, the PBGC interest rate for immediate
annuities for November 1994 is 6%, and the PBGC interest rates for the
deferral period for that month are as follows: 5.25% for the first 7
years of the deferral period, 4% for the following 8 years of the
deferral period, and 4% for the remainder of the deferral period. For
November 1994, 120 percent of the PBGC interest rate is 7.2% (1.2 times
6%) for an immediate annuity, 6.3% (1.2 times 5.25%) for the first 7
years of the deferral period, 4.8% (1.2 times 4%) for the following 8
years of the deferral period, and 4.8% (1.2 times 4%) for the remainder
of the deferral period. The PBGC interest rates are the interest rates
that would be used (as of the date of the distribution) by the PBGC for
purposes of determining the present value of that benefit upon
termination of an insufficient trusteed single employer plan. Except as
otherwise provided by the Commissioner, the PBGC interest rates are
determined by PBGC regulations. See 29 CFR part 2619 for the applicable
PBGC rates.
(ii) Time for determining interest rate. (A) Except as provided in
paragraph (d)(9)(ii)(B) of this section, the PBGC interest rate or
rates are determined on either the annuity starting date or the first
day of the plan year that contains the annuity starting date. The plan
must provide which date is applicable.
(B) The plan may provide for the use of any other time for
determining the PBGC interest rate or rates provided that such time is
not more than 120 days before the annuity starting date if such time is
determined in a consistent manner and is applied uniformly to all
participants.
(C) The Commissioner may, in revenue rulings, notices or other
guidance, published in the Internal Revenue Bulletin (see
Sec. 601.601(d)(2)(ii)(b)), prescribe other times for determining the
PBGC interest rate or rates.
(iii) No applicable mortality table. In the case of a distribution
to which this paragraph (d)(9) applies, the rules of this paragraph (d)
are applied without regard to the applicable mortality table described
in paragraph (d)(2) of this section.
(10) Relationship with section 411(d)(6)--(i) In general. Except as
provided in this paragraph (d)(10), a plan amendment that changes the
interest rate, the time for determining the interest rate, or the
mortality assumptions used for the purposes described in paragraph
(d)(1) of this section is subject to section 411(d)(6). But see
Sec. 1.411(d)-4, Q&A 2(b)(2)(v) (regarding plan amendments relating to
involuntary distributions).
(ii) Change in time for determining interest rate. Notwithstanding
the general rule of paragraph (d)(10)(i) of this section, if a plan
amendment changes the time for determining the applicable interest rate
(including an indirect change as a result of a change in plan year),
the amendment will not be treated as reducing accrued benefits in
violation of section 411(d)(6) merely on account of this change if the
conditions of this paragraph (d)(10)(ii) are satisfied. Any
distribution for which the annuity starting date occurs in the one-year
period commencing at the time the plan amendment is effective (if the
amendment is effective on or after the adoption date) must use the
interest rate as provided under the terms of the plan after the
effective date of the amendment, determined at either the date for
determining the interest rate before the amendment or the date for
determining the interest rate after the amendment, whichever results in
the larger distribution. If the plan amendment is adopted retroactively
(that is, the amendment is effective prior to the adoption date), the
plan must use the interest rate determination date resulting in the
larger distribution for the period beginning with the effective date
and ending one year after the adoption date.
(iii) Section 411(d)(6) relief for plan amendments pursuant to
changes to section 417 made by RPA '94--(A) [[Page 17221]] Replacement
of PBGC interest rate. A participant's accrued benefit is not
considered to be reduced in violation of section 411(d)(6) merely
because of a plan amendment that changes any interest rate or mortality
assumption used to calculate the present value of a participant's
benefit under the plan (even if the amendment provides for temporary
additional benefits to accommodate a more gradual transition from the
plan's old interest rate to the new rules), if the following conditions
are satisfied--
(1) The amendment replaces the PBGC interest rate (or an interest
rate or rates based on the PBGC interest rate) as the interest rate
used under the plan in determining the present value of a participant's
benefit under this paragraph (d); and
(2) After the amendment is effective, the present value of a
participant's benefit under the plan cannot be less than the amount
calculated using the applicable mortality table and the applicable
interest rate for the first full calendar month preceding the calendar
month that contains the annuity starting date.
(B) Replacement of non-PBGC interest rate. The section 411(d)(6)
relief provided in paragraph (d)(10)(iii)(A) of this section does not
apply to a plan amendment that replaces an interest rate other than the
PBGC interest rate (or an interest rate or rates based on the PBGC
interest rate) as an interest rate used under the plan in determining
the present value of a participant's benefit under this paragraph (d).
Thus, the accrued benefit determined using that interest rate and the
associated mortality table is protected under section 411(d)(6). For
purposes of paragraphs (d)(10)(iii)(A) and (B) of this section, an
interest rate is based on the PBGC interest rate if the interest rate
is defined as a specified percentage of the PBGC interest rate or as
the PBGC interest rate minus a specified number of basis points.
(C) Plan amendment providing for prior determination date or up to
two months earlier. If the special rule of paragraph (d)(10)(iii)(A) of
this section would apply to a plan except that the applicable interest
rate is determined for a month other than the first full calendar month
preceding the calendar month that contains the annuity starting date, a
participant's accrued benefit is not considered to be reduced in
violation of section 411(d)(6) if the applicable interest rate is
determined for the calendar month that contains the date as of which
the PBGC interest rate was determined immediately before the amendment,
or for one of the two calendar months immediately preceding that month,
or if the plan amendment satisfies the conditions of paragraph
(d)(10)(ii) of this section.
(D) Examples. The provisions of this paragraph (d)(10)(iii) are
illustrated by the following examples:
Example 1. On December 31, 1994, Plan A provided that all
single-sum distributions were to be calculated using the UP-1984
Mortality Table and 100% of the PBGC interest rate for the date of
distribution. On January 4, 1995, and effective on February 1, 1995,
Plan A was amended to provide that all single-sum distributions are
calculated using the applicable mortality table and the annual
interest rate on 30-year Treasury securities for the first full
calendar month preceding the calendar month that contains the
annuity starting date. This amendment of Plan A is not considered to
reduce the accrued benefit of any participant in violation of
section 411(d)(6).
Example 2. On December 31, 1994, Plan B provided that all
single-sum distributions were to be calculated using the UP-1984
Mortality Table and an interest rate equal to the lesser of 100% of
the PBGC interest rate for the date of distribution, or 6%. On
January 4, 1995, and effective on February 1, 1995, Plan B was
amended to provide that all single-sum distributions are calculated
using the applicable mortality table and the annual interest rate on
30-year Treasury securities for the second full calendar month
preceding the calendar month that contains the annuity starting
date. The 6% interest rate provided for under the plan is not based
on the PBGC interest rate. Therefore, to satisfy the requirements of
section 411(d)(6), the plan must provide that the single-sum
distribution payable to any participant must be no less than the
single-sum distribution calculated using the UP-1984 Mortality Table
and an interest rate of 6%, based on the participant's benefits
under the plan accrued through January 31, 1995, and based on the
participant's age at the annuity starting date.
Example 3. (a) Employer X maintains Plan C, a calendar year
plan. As of December 7, 1994, Plan C provided for single-sum
distributions to be calculated using the PBGC interest rate as of
the annuity starting date for distributions not greater than
$25,000, and 120% of that interest rate (but not an interest rate
producing a present value less than $25,000) for distributions over
$25,000. Employer X wishes to delay the effective date of the RPA
'94 rules for a year, and to provide for an extended transition from
the use of the PBGC interest rate to the new applicable interest
rate under section 417(e)(3). On December 1, 1995, and effective on
January 1, 1996, Employer X amends Plan C to provide that single-sum
distributions are determined as the sum of--
(i) The single-sum distribution calculated based on the
applicable mortality table and the annual interest rate on 30-year
Treasury securities for the first full calendar month preceding the
calendar month that contains the annuity starting date; and
(ii) A transition amount.
(b) The amendment provides that the transition amount for
distributions in the years 1996-99 is a transition percentage of the
excess, if any, of the amount that the single-sum distribution would
have been under the plan provisions in effect prior to this
amendment over the amount of the single sum described in paragraph
(a)(i) of this Example 3. The transition percentages are 80% for
1996, decreasing to 60% for 1997, 40% for 1998 and 20% for 1999. The
amendment also provides that the transition amount is zero for plan
years beginning on or after the year 2000. Plan C is not considered
to have reduced the accrued benefit of any participant in violation
of section 411(d)(6) by reason of this plan amendment.
Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: March 15, 1995.
Leslie Samuels,
Assistant Secretary of the Treasury.
[FR Doc. 95-8229 Filed 4-4-95; 8:45 am]
BILLING CODE 4830-01-U