[Federal Register Volume 60, Number 184 (Friday, September 22, 1995)]
[Rules and Regulations]
[Pages 49218-49222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23263]



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DEPARTMENT OF THE TREASURY
26 CFR Parts 1 and 602

[TD 8620]
RIN 1545-AT75


Notice, Consent, and Election Requirements of Sections 411(a)(11) 
and 417

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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[[Page 49219]]


SUMMARY: This document contains regulations that provide guidance 
concerning the notice and consent requirements under section 411(a)(11) 
and the notice and election requirements under section 417. The text of 
the 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.

EFFECTIVE DATE: These regulations are effective September 22, 1995.

FOR FURTHER INFORMATION CONTACT: Thomas Foley, (202) 622-6050 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    These regulations are being issued without prior notice and public 
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553). 
For this reason, the collection of information contained in these 
regulations has been reviewed and, pending receipt and evaluation of 
public comments, approved by the Office of Management and Budget under 
control number 1545-1471. Responses to this collection of information 
are required to assure that the rights of qualified plan participants 
are protected.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless the collection of 
information displays a valid control number.
    For further information concerning this collection of information, 
and where to submit comments on the collection of information and the 
accuracy of the estimated burden and suggestions for reducing this 
burden, please refer to the preamble to the cross-referencing notice of 
proposed rulemaking published in the Proposed Rules section of this 
issue of the Federal Register.
    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 amendments to the Income Tax Regulations (26 
CFR part 1) under section 411(a)(11) and section 417(e). Section 
1.411(a)-11(c) provides that a participant's consent to a distribution 
under section 411(a)(11) is not valid unless the participant receives a 
notice of his or her rights under the plan no more than 90 and no less 
than 30 days prior to the annuity starting date. Section 1.417(e)-1 
sets forth the same 90/30-day time period for providing the notice 
explaining the qualified joint and survivor annuity and waiver rights 
required under section 417(a)(3).
    The October 1992 temporary regulations that provided guidance on 
the amendment to section 402(f) made by the Unemployment Compensation 
Amendments of 1992 (UCA), published in the Federal Register at 57 FR 
48163, generally prescribed this 90/30-day time period for purposes of 
the notice requirement under that section. In the preamble to those 
regulations, the IRS and Treasury requested comments on the 
appropriateness of this time period for section 411(a)(11), as well as 
for section 402(f).
    In response to initial comments on the UCA proposed and temporary 
regulations, additional guidance was provided in Notice 93-26 (1993-1 
C.B. 293), which modified the 30-day time period for purposes of 
sections 402(f) and 411(a)(11). These temporary regulations modify the 
30-day time period in Sec. 1.411(a)-11 in a manner consistent with 
Notice 93-26 and also provide a more limited modification to the 30-day 
time period in Sec. 1.417(e)-1. These temporary regulations are being 
published in conjunction with the final regulations implementing the 
UCA changes, published elsewhere in this issue of the Federal Register.

Explanation of Provisions

1. Overview

    Section 411(a)(11) provides that, if the value of a participant's 
accrued benefit exceeds $3,500, a qualified plan generally may not 
distribute the benefit to the participant without the participant's 
consent.
    Section 401(a)(11) requires that certain distributions be made in 
the form of a qualified joint and survivor annuity (QJSA) unless, in 
accordance with section 417, the participant waives the QJSA and elects 
a different form of benefit. Profit-sharing plans and stock bonus plans 
that meet the requirements of sections 401(a)(11)(B)(iii) (I) through 
(III) are not subject to the survivor annuity requirements of sections 
401(a)(11) and 417.
    Section 417 sets forth the requirements applicable to a waiver of 
the QJSA. Section 417(a) requires the participant to obtain the consent 
of the participant's spouse, if any, to any waiver of the QJSA and 
election of a form of benefit other than a QJSA. Any election made by 
the participant must be revocable during the 90-day period ending on 
the annuity starting date. Section 417(a)(3) requires that, within a 
reasonable period of time before the participant's annuity starting 
date, a plan provide the participant with a notice explaining the 
participant's right to the QJSA and the participant's right to waive 
the QJSA.

2. Implementation of Notice 93-26 Modification of 30-Day Period

    Under Notice 93-26, if, after having received the notice of 
distribution rights described in Sec. 1.411(a)-11, a participant 
affirmatively elects a distribution, a plan will not fail to satisfy 
the consent requirement of section 411(a)(11) merely because the 
distribution is made less than 30 days after the notice was provided to 
the participant. However, the participant must be notified that he or 
she has the opportunity to consider whether to elect a distribution 
(and, if applicable, a particular distribution option) for at least 30 
days after the notice is provided. The plan administrator may provide 
this information to the participant using any method that is reasonably 
designed to attract the attention of the participant.
    The comments on the guidance in Notice 93-26 with respect to 
section 411(a)(11) were generally favorable. Accordingly, these 
temporary regulations amend Sec. 1.411(a)-11 by modifying the 30-day 
rule in a manner consistent with Notice 93-26.
    The final UCA regulations and these temporary regulations are 
structured to allow plan administrators to provide the participant 
notices required under sections 402(f), 411(a)(11) and 417 at the same 
time. Under the final UCA regulations, the section 402(f) notice must 
be provided no more than 90 and no less than 30 days before the date of 
distribution. Similarly, these temporary regulations provide that the 
30-day and 90-day periods for purposes of the section 411(a)(11) notice 
are measured from the date that the distribution commences.
    Alternatively, the plan administrator may substitute the annuity 
starting date, as defined in Sec. 1.401(a)-20, Q&A-10, for the date the 
distribution commences for purposes of both the section 402(f) notice 
and the section 411(a)(11) notice. If a plan administrator uses this 
alternative, the 90/30-day time period will be the same for the notices 
required under sections 402(f), 411(a)(11) and 417.

[[Page 49220]]


3. Modification of 30-Day Time Period for QJSA Explanation

    Notice 93-26 did not affect the requirements that sections 
401(a)(11) and 417 and related regulations impose on distributions 
subject to those sections. Some commentators requested that the 
modification provided in Notice 93-26 with respect to section 
411(a)(11) be made to the 30-day time period in the regulations under 
section 417. These temporary regulations under section 417 provide 
substantial relief from the constraints imposed by the 30-day time 
period but, for the reasons noted below, do not adopt a rule that is 
identical to that provided under section 411(a)(11).
    After careful consideration, the IRS and Treasury have concluded 
that it would not be consistent with the statutory purpose of section 
417 to adopt the same modification to the 30-day time period that was 
adopted by Notice 93-26 under section 411(a)(11). Plans subject to 
section 417 often provide a variety of distribution options that may 
have different actuarial values and can be difficult to evaluate. In 
addition, section 417 establishes a revocation period for a waiver of 
the QJSA and provides explicit safeguards to ensure informed consent of 
the participant and the participant's spouse. For example, section 417 
requires witnessed or notarized spousal consent that acknowledges the 
effect of the election to waive the QJSA. This statutory structure 
reflects Congressional recognition that a distribution election with 
respect to annuity benefits is an important financial decision that 
affects the retirement security of the participant and the 
participant's spouse. In view of these concerns, these temporary 
regulations retain a minimum period for participants and spouses to 
consider or reconsider the distribution options after the section 417 
notice is provided.
    However, the IRS and Treasury are also aware that, if a plan 
provides an unreduced early retirement annuity, the application of the 
current 30-day election and revocation period might cause the 
participant to lose a month's benefit. Moreover, a full 30-day election 
and revocation period may not be necessary for a participant (and where 
applicable, the participant's spouse) who, after being provided with 
the opportunity to carefully consider the decision, affirmatively 
elects a form of distribution.
    In order to address these concerns, while still providing 
sufficient time to consider (or reconsider) the decision whether to 
waive the QJSA, these temporary regulations permit the plan (or, where 
not inconsistent with the terms of the plan, the plan administrator) to 
commence distributions before the end of the 30-day time period, if 
certain requirements are met. Specifically, after an affirmative 
distribution election, with any applicable spousal consent, the plan 
may permit the distribution to commence at any time more than seven 
days after the explanation of the QJSA was provided to the participant. 
The annuity starting date must be a date after the explanation of the 
QJSA is provided to the participant, but may precede the date the 
participant affirmatively elects a distribution or the date the 
distribution commences. Any distribution election must remain revocable 
until the later of the annuity starting date or the expiration of the 
seven-day period that begins the day after the QJSA explanation is 
provided. For example, if a married participant receives the 
explanation of the QJSA on November 28 and elects (with spousal 
consent) on December 2 to waive the QJSA and receive an immediate 
single life annuity, the annuity starting date is permitted to be 
December 1, provided that the first payment is made no earlier than 
December 6 and the participant does not revoke the election before that 
date.

4. 90-Day Time Period and Method of Providing Notice

    Some commentators requested an expansion of the 90-day time period. 
More broadly, commentators asked that the requirements of sections 
411(a)(11), 417, and 402(f) be addressed in the context of new 
technologies that use electronic media, such as telephone or computer 
systems, to automate plan administrative functions that traditionally 
have been processed manually by use of paper-based systems (e.g., 
notices to participants and participant distribution requests). For 
example, some commentators have suggested that plans be permitted to 
provide an annual written notice if a summary of the notice is provided 
through these new technologies.
    The IRS and Treasury continue to believe that the section 
411(a)(11) and section 417 notices, as well as the section 402(f) 
notice, should be provided close to the time participants are 
considering the distribution to which the notice applies. Therefore, 
these temporary regulations do not change the 90-day time period.
    Although these temporary regulations provide no additional guidance 
on the use of electronic media, the IRS and Treasury will continue to 
consider possible modifications to the notice and consent requirements 
that might be appropriate to accommodate new technologies, if adequate 
safeguards are provided, and invite comments on this issue. These final 
regulations specifically delegate authority to the Commissioner to 
modify the notice, consent, and election requirements or provide 
additional guidance, in the Internal Revenue Bulletin, with respect to 
those requirements.

5. Effective Date

    Because these temporary regulations relax the requirements that 
plans must satisfy, they are effective September 22, 1995.

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 Marjorie Hoffman, 
Office of the Associate Chief Counsel (Employee Benefits and Exempt 
Organizations), IRS. However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 602

    Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 602 are 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. * * *


[[Page 49221]]

    Par. 2. Sec. 1.411(a)-(11) is amended as follows:
    1. Paragraph (c)(2)(ii) is revised to read as set forth below.
    2. Paragraph (c)(2)(iii) is removed.


Sec. 1.411(a)-11  Restriction and valuation of distributions.

* * * * *
    (c) * * *
    (2) * * *
    (ii) For additional rules concerning the consent requirement of 
section 411(a)(11), see Sec. 1.411(a)-11T(c)(2)(ii) through (v) and 
(c)(8).
* * * * *
    Par. 3. Sec. 1.411(a)-11T is added to read as follows:


Sec. 1.411(a)-11T Restriction and valuation of distributions 
(temporary).

    (a) and (b) [Reserved]
    (c) Consent, etc. requirements--(1) General rule. [Reserved]
    (2) Consent--(i) [Reserved]
    (ii) Written consent of the participant to the distribution must 
not be made before the participant receives the notice of his or her 
rights specified in this paragraph (c)(2) and must not be made more 
than 90 days before the date the distribution commences.
    (iii) A plan must provide participants with notice of their rights 
specified in this paragraph (c)(2) no less than 30 days and no more 
than 90 days before the date the distribution commences. However, if 
the participant, after having received this notice, affirmatively 
elects a distribution, a plan will not fail to satisfy the consent 
requirement of section 411(a)(11) merely because the distribution 
commences less than 30 days after the notice was provided to the 
participant, provided that the following requirement is met. The plan 
administrator must provide information to the participant clearly 
indicating that (in accordance with the first sentence of this 
paragraph (c)(2)(iii)) the participant has a right to at least 30 days 
to consider whether to consent to the distribution.
    (iv) For purposes of satisfying the requirements of this paragraph 
(c)(2), the plan administrator may substitute the annuity starting 
date, within the meaning of Sec. 1.401(a)-20, Q&A-10, for the date the 
distribution commences.
    (v) See Sec. 1.401(a)-20, Q&A-24 for a special rule applicable to 
consents to plan loans.
    (3) through (7) [Reserved].
    (8) Delegation to Commissioner. The Commissioner, in revenue 
rulings, notices, and other guidance published in the Internal Revenue 
Bulletin, may modify, or provide additional guidance with respect to, 
the notice and consent requirements of this section. See 
Sec. 601.601(d)(2)(ii)(b) of this chapter.
    Par. 4. Sec. 1.417(e)-1 is amended by revising paragraph (b)(3) to 
read as follows:


Sec. 1.417(e)-1  Restrictions and valuations of distributions from 
plans subject to sections 401(a)(11) and 417.

* * * * *
    (b) * * *
    (3) Time of consent. For distributions on or after September 22, 
1995, the additional rules concerning the notice and consent 
requirements of section 417 in Sec. 1.417(e)-1T(b) (3) and (4) also 
apply. For distributions before September 22, 1995, the additional 
rules concerning the notice and consent requirements of section 417 in 
Sec. 1.417(e)-1(b)(3) (as it appeared in the April 1, 1995 edition of 
26 CFR part 1) apply.
* * * *
    Par. 5. Section 1.417(e)-1T is amended by adding paragraph (b) 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).

* * * * *
    (b) Consent, etc. requirements--(1) General rule. [Reserved]
    (2) Consent. [Reserved]
    (3) Time of consent--(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.
    (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. 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 annuity 
starting date is less than 30 days after the written explanation was 
provided to the participant, provided that the following requirements 
are met:
    (A) The plan administrator provides information to the participant 
clearly indicating that (in accordance with the first sentence of this 
paragraph (b)(3)(ii)) the participant has a right to at least 30 days 
to consider whether to waive the QJSA and consent to a form of 
distribution other than a QJSA.
    (B) The participant is permitted to revoke an affirmative 
distribution election at least until the annuity starting date, or, if 
later, at any time prior to the expiration of the 7-day period that 
begins the day after the explanation of the QJSA is provided to the 
participant.
    (C) The annuity starting date is after the date that the 
explanation of the QJSA is provided to the participant. However, 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 the distribution is permitted to commence under 
paragraph (b)(3)(ii)(D) of this section.
    (D) Distribution in accordance with the affirmative election does 
not commence before the expiration of the 7-day period that begins the 
day after the explanation of the QJSA is provided to the participant.
    (iii) The following example illustrates the provisions of this 
paragraph (b)(3):

    Example. Employee E, a married participant in a defined benefit 
plan who has terminated employment, is provided with the explanation 
of the QJSA on November 28. Employee E elects (with spousal consent) 
on December 2 to waive the QJSA and receive an immediate 
distribution in the form of a single life annuity. The plan may 
permit Employee E to receive payments with an annuity starting date 
of December 1, provided that the first payment is made no earlier 
than December 6 and the participant does not revoke the election 
before that date. The plan can make the remaining monthly payments 
on the first day of each month thereafter in accordance with its 
regular payment schedule.

    (4) Delegation to Commissioner. The Commissioner, in revenue 
rulings, notices, and other guidance published in the Internal Revenue 
Bulletin, may modify, or provide additional guidance with respect to, 
the notice and consent requirements of this section. See 
Sec. 601.601(d)(2)(ii)(b) of this chapter.
* * * * *

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

    Par. 6. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7805.

    Par. 7. In Sec. 602.101, paragraph (c) is amended by adding to the 
table the following entries in numerical order to read as follows:


Sec. 602.101  OMB control numbers.

* * * * *
    (c) * * *

------------------------------------------------------------------------
                                                             Current OMB
     CFR part or section where identified and described      control No.
------------------------------------------------------------------------
                                                                        
                  *        *        *        *        *                 
1.411(a)-11T...............................................   1545-1471 

[[Page 49222]]
                                                                        
                                                                        
                  *        *        *        *        *                 
1.417(e)-1T................................................    1545-1471
                                                                        
                  *        *        *        *        *                 
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Margaret Milner Richardson,
Commissioner of Internal Revenue.
    Approved: August 29, 1995.
Cynthia G. Beerbower,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 95-23263 Filed 9-15-95; 4:00 pm]
BILLING CODE 4830-01-U