[Federal Register Volume 62, Number 249 (Tuesday, December 30, 1997)]
[Proposed Rules]
[Pages 67780-67784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33393]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[REG-209463-82]
RIN 1545-AV82
Required Distributions From Qualified Plans and Individual
Retirement Plans
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking.
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SUMMARY: This document contains amendments to the existing proposed
regulations under section 401(a)(9) that make changes to the rules that
apply if a trust is named as a beneficiary of an employee's benefit
under a retirement plan. These proposed regulations will affect
administrators of, participants in, and beneficiaries of qualified
plans, institutions which sponsor and individuals who administer
individual retirement plans, individuals who use individual retirement
plans, simplified employee pensions and SIMPLE Savings Plans for
retirement income and beneficiaries of individual retirement plans; and
employees for whom amounts are contributed to section 403(b) annuity
contracts, custodial accounts, or retirement income accounts and
beneficiaries of such contracts and accounts.
DATES: Written comments and requests for a public hearing must be
received by March 30, 1998.
ADDRESSES: Send submissions to CC:DOM:CORP:R (REG-209463-82),
[[Page 67781]]
room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG-209463-82), Courier's
Desk, Internal Revenue Service, 1111 Constitution Avenue NW.,
Washington, DC. 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.ustreas.gov/prod/tax__regs/
comments.html.
FOR FURTHER INFORMATION CONTACT: Thomas Foley at (202) 622-6030 (not a
toll-free number).
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, T:FP, Washington, DC
20224. Comments on the collection of information should be received by
March 2, 1998. Comments are specifically requested concerning:
Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
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
Question and Answer D-7 of Sec. 1.401(a)(9)-1. This information is
required for a taxpayer who wants to name a trust and treat the
underlying beneficiaries of the trust as designated beneficiaries of
the taxpayer's benefit under a retirement plan or an individual
retirement plan (``IRA''). The taxpayer must provide a copy of the
trust instrument or IRA trustee, custodian, or issuer, or provide a
list of all the beneficiaries of the trust, certify that, to the best
of the taxpayer's knowledge, this list is correct and complete, and
agree to provide a copy of the trust instrument upon demand. In
addition, other related requirements for the beneficiaries of the trust
to be treated as designated beneficiaries must be satisfied. If the
trust instrument is amended at any time in the future, the taxpayer
must, within a reasonable time, provide a copy of each such amendment,
or provide corrected certifications to the extent that the amendment
changes the information previously certified. In addition, by the end
of the ninth month after the death of the taxpayer, the trustee of the
trust must provide a copy of the trust to the plan administrator or IRA
trustee, custodian, or issuer, or provide a list of all the
beneficiaries of the trust, certify that, to the best of the taxpayer's
knowledge, this list is correct and complete, and agrees to provide a
copy of the trust instrument upon demand. The collection of information
is required to obtain a benefit. The likely respondents are individuals
or households.
Estimated total annual reporting hours is 333 hours.
The estimated average burden per respondent is 20 minutes.
The estimated total number of respondents is 1,000.
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
On July 27, 1987, Proposed Regulations (EE-113-82) under sections
401(a)(9), 403(b), 408, and 4974 of the Internal Revenue Code of 1986
were published in the Federal Register (52 FR 28070). Those proposed
regulations provide guidance for complying with the rules relating to
required distributions from qualified plans, individual retirement
plans, and section 403(b) annuity contracts, custodial accounts, and
retirement income accounts. This document contains amendments to
proposed Sec. 1.401(a)(9)-1 (hereinafter referred to as the Existing
Proposed Regulations) that was included in EE-113-82. Specifically this
document contains amendments to Q&As D-5 and Q&A D-6 of the Existing
Proposed Regulations which prescribe specific requirements that must be
met when a trust is named as a beneficiary of an employee's benefit
under a plan, and adds a new Q&A D-7 to the Existing Proposed
Regulations. Proposed Sec. Sec. 1.408-8 and 1.403(b)-2 (also included
in EE-113-82) provide that the provisions of proposed Sec. 1.401(a)(9)-
1 generally apply to individual retirement plans, and section 403(b)
annuity contracts, custodial accounts, and retirement income accounts.
Accordingly, these amendments and additions also generally apply to
such plans, contracts, and accounts.
The amendments and additions to the Existing Proposed Regulations
in these proposed regulations are issued in response to comments and
questions received regarding the Existing Proposed Regulations with
respect to section 401(a)(9). Treasury and the IRS continue to welcome
additional comments concerning the Existing Proposed Regulations and
the other sections of EE-113-82.
As in the case of the Existing Proposed Regulations and the other
sections of EE-113-82, taxpayers may rely on these proposed regulations
for guidance pending the issuance of final regulations. If, and to the
extent, future guidance is more restrictive than the guidance in these
proposed regulations, the future guidance will be applied without
retroactive effect.
Explanation of Provisions
Overview
Section 401(a)(9)(A) provides that, in order for a plan to be
qualified under section 401(a), distributions of each employee's
interest in the plan must commence no later than the ``required
beginning date'' for the employee and must be distributed over a period
not to exceed the joint lives or joint life expectancy of the employee
and the employee's designated beneficiary. Section 401(a)(9)(B)
provides that if distribution does not commence prior to death in
accordance with section 401(a)(9)(A), distributions of the employee's
interest must be made within 5 years of the employee's death or,
generally, commence within one year of the employee's death and be
[[Page 67782]]
made over the life or life expectancy of the designated beneficiary.
Section 401(a)(9)(E) defines the term ``designated beneficiary'' as
an individual designated as a beneficiary by the employee. The Existing
Proposed Regulations provide that, for purposes of section 401(a)(9),
only individuals may be designated beneficiaries. A beneficiary who is
not an individual, such as the employee's estate, may not be a
designated beneficiary for purposes of determining the minimum required
distribution, but nevertheless may be designated as the employee's
beneficiary under the plan. If a beneficiary who is not an individual
is designated to receive an employee's benefit after death, the
employee is treated as having no designated beneficiary when
determining the required minimum distribution. In that case, under
section 401(a)(9), distributions commencing before death must be made
over the employee's single life or life expectancy and distributions
commencing after death must be made within 5 years of the employee's
death.
However, the Existing Proposed Regulations provide that if a trust
is named as a beneficiary of an employee's benefit under the plan, the
underlying beneficiaries of the trust may be treated as designated
beneficiaries for purposes of section 401(a)(9) if certain requirements
are satisfied. In response to comments, these proposed regulations
modify these trust beneficiary requirements as explained below by:
Permitting the designated beneficiary of a revocable trust
to be treated as the designated beneficiary for purposes of determining
the minimum distribution under section 401(a)(9), provided that the
trust becomes irrevocable upon the death of the employee.
Providing relief from the requirement that the plan be
provided with a copy of the trust document if certain certification
requirements are met.
Irrevocability of Trust
The Existing Proposed Regulations generally provide that a trust
must be irrevocable as of the employee's required beginning date in
order for the beneficiaries of the trust to be treated as designated
beneficiaries under the plan for purposes of determining the
distribution period under section 401(a)(9)(A). Commentators have
indicated that most trusts established for estate planning purposes and
designated as the beneficiary of an employee's plan benefits are
revocable instruments prior to the death of the employee. In response
to those comments, these proposed regulations provide that a trust
named as beneficiary of an employee's interest in a retirement plan be
permitted to be revocable while the employee is alive, provided that it
becomes irrevocable, by its terms, upon the death of the employee. The
requirements in the Existing Proposed Regulations that the trust be
valid under state law (or would be but for the fact that there is no
corpus) and that the beneficiaries be identifiable from the trust
instrument are retained.
Information to Plan Administrator
In order to permit the plan administrator to substantiate that the
requirements for treating the beneficiaries of the trust as designated
beneficiaries under the plan are satisfied, the Existing Proposed
Regulations require that a copy of the trust instrument be provided to
the plan administrator by the earlier of the required beginning date or
the date of the employee's death. In response to comments, this
proposed regulation permits an alternative method of substantiation.
As under the Existing Proposed Regulations, a copy of the trust
instrument may be provided to the plan administrator. However, because
the trust need not be irrevocable, under this method, the employee must
also agree that if the trust instrument is amended at any time in the
future, the employee will, within a reasonable time, provide a copy of
each such amendment.
Alternatively, the employee may provide a list of all of the
beneficiaries of the trust (including contingent beneficiaries) with a
description of the portion to which they are entitled and any
conditions on their entitlement, and certify that, to the best of the
employee's knowledge, this list is correct and complete and that the
other requirements for the beneficiaries of the trust to be treated as
designated beneficiaries are satisfied. Under the second method, the
employee must also agree to provide corrected certifications to the
extent that the amendment changes the information previously certified.
Finally, the employee must agree to provide a copy of the trust
instrument to the plan administrator upon demand.
In addition, these proposed regulations provide that, if the
minimum required distributions after death are determined by treating
the beneficiaries of the trust as designated beneficiaries, a final
certification as to the beneficiaries of the trust instrument must be
provided to the plan administrator by the end of the ninth month after
the death of the employee. This rule applies even if a copy of the
trust instrument were provided to the plan administrator before the
employee's death. Alternatively, an updated trust instrument may be
provided.
The proposed regulations also provide that a plan will not fail to
satisfy section 401(a)(9) merely because the terms of the actual trust
instrument are inconsistent with the information in the certifications
or trust instruments previously provided to the plan administrator if
the plan administrator reasonably relies on the information provided in
the certifications or trust instruments. However, the minimum required
distributions for years after the year in which the discrepancy is
discovered must be determined based on the actual terms of the trust
instrument. For those years, the minimum required distribution will be
determined by treating the beneficiaries of the employee as having been
changed in the year in which the year the discrepancy was discovered to
conform to the corrected information and by applying the change in
beneficiary provisions found under the Existing Proposed Regulations.
However, for purposes of determining the amount of the excise tax under
section 4974 (including application of a waiver, if any, for reasonable
error under section 4974), the minimum required distribution is
determined for any year based on the actual terms of the trust in
effect during the year.
Special Analyses
It has been determined that this notice of proposed rulemaking 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) does not apply to these regulations. Moreover, it is hereby
certified that the regulations in this document will not have a
significant economic impact on a substantial number of small entities.
This certification is based on the fact that the reporting burden is
primarily on the plan participant to supply the information rather than
on the entity maintaining the retirement plan and the fact that the
number of participants per plan to whom the burden applies is
insignificant. Accordingly, a regulatory flexibility analysis under the
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Internal Revenue Code, this
[[Page 67783]]
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 (preferably a
signed original and eight (8) copies) or comments transmitted via
Internet that are submitted timely to the IRS. All comments will be
available for public inspection and copying. A public hearing may be
scheduled if requested in writing by a person that timely submits
written comments. If a public hearing is scheduled, notice of the date,
time, and place for the hearing will be published in the Federal
Register.
Drafting Information: The principal author of these regulations is
Cheryl Press, 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 in 26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Amendments to the Previously Proposed 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 1.401(a)(9)-1 as proposed to be added at 52 FR
28075, July 27, 1987, is amended by:
1. Revising Q&A D-5.
2. Revising Q&A D-6.
3. Adding Q&A D-7.
The additions and revisions read as follows:
Sec. 1.401(a)(9)-1 Required distributions from trust and plans.
* * * * *
D. Determination of the Designated Beneficiary
* * * * *
D-5. Q. If a trust is named as a beneficiary of an employee, will
the beneficiaries of the trust with respect to the trust's interest in
the employee's benefit be treated as having been designated as
beneficiaries of the employee under the plan for purposes of
determining the distribution period under section 401(a)(9)(A)(ii)?
A. (a) Pursuant to D-2A of this section, only an individual may be
a designated beneficiary for purposes of determining the distribution
period under section 401(a)(9)(A)(ii). Consequently, a trust itself may
not be the designated beneficiary even though the trust is named as a
beneficiary. However, if the requirements of paragraph (b) of this D-5A
are met, distributions made to the trust will be treated as paid to the
beneficiaries of the trust with respect to the trust's interest in the
employee's benefit, and the beneficiaries of the trust will be treated
as having been designated as beneficiaries of the employee under the
plan for purposes of determining the distribution period under section
401(a)(9)(A)(ii). If, as of any date on or after the employee's
required beginning date, a trust is named as a beneficiary of the
employee and the requirements in paragraph (b) of this D-5A are not
met, the employee will be treated as not having a designated
beneficiary under the plan for purposes of section 401(a)(9)(A)(ii).
Consequently, for calendar years beginning after that date,
distribution must be made over the employee's life (or over the period
which would have been the employee's remaining life expectancy
determined as if no beneficiary had been designated as of the
employee's required beginning date).
(b) The requirements of this paragraph (b) are met if, as of the
later of the date on which the trust is named as a beneficiary of the
employee, or the employee's required beginning date, and as of all
subsequent periods during which the trust is named as a beneficiary,
the following requirements are met:
(1) The trust is a valid trust under state law, or would be but for
the fact that there is no corpus.
(2) The trust is irrevocable or will, by its terms, become
irrevocable upon the death of the employee.
(3) The beneficiaries of the trust who are beneficiaries with
respect to the trust's interest in the employee's benefit are
identifiable from the trust instrument within the meaning of D-2 of
this section.
(4) The documentation described in D-7 of this section has been
provided to the plan administrator.
(c) In the case of payments to a trust having more than one
beneficiary, see E-5 of this section for the rules for determining the
designated beneficiary whose life expectancy will be used to determine
the distribution period. If the beneficiary of the trust named as
beneficiary is another trust, the beneficiaries of the other trust will
be treated as having been designated as beneficiaries of the employee
under the plan for purposes of determining the distribution period
under section 401(a)(9)(A)(ii), provided that the requirements of
paragraph (b) of this D-5A are satisfied with respect to such other
trust in addition to the trust named as beneficiary.
D-6. Q. If a trust is named as a beneficiary of an employee, will
the beneficiaries of the trust with respect to the trust's interest in
the employee's benefit be treated as designated beneficiaries under the
plan with respect to the employee for purposes of determining the
distribution period under section 401(a)(9)(B)(iii) and (iv)?
A. (a) If a trust is named as a beneficiary of an employee and the
requirements of paragraph (b) of D-5A of this section are satisfied as
of the date of the employee's death or, in the case of the
documentation described in D-7 of this section, by the end of the ninth
month beginning after the employee's date of death, then distributions
to the trust for purposes of section 401(a)(9) will be treated as being
paid to the appropriate beneficiary of the trust with respect to the
trust's interest in the employee's benefit, and all beneficiaries of
the trust with respect to the trust's interest in the employee's
benefit will be treated as designated beneficiaries of the employee
under the plan for purposes of determining the distribution period
under section 401(a)(9)(B)(iii) and (iv). If the beneficiary of the
trust named as beneficiary is another trust, the beneficiaries of the
other trust will be treated as having been designated as beneficiaries
of the employee under the plan for purposes of determining the
distribution period under section 401(a)(9)(B)(iii) and (iv), provided
that the requirements of paragraph (b) of D-5A of this section are
satisfied with respect to such other trust in addition to the trust
named as beneficiary. If a trust is named as a beneficiary of an
employee and if the requirements of paragraph (b) of D-5A of this
section are not satisfied as of the dates specified in the first
sentence of this paragraph, the employee will be treated as not having
a designated beneficiary under the plan. Consequently, distribution
must be made in accordance with the five-year rule in section
401(a)(9)(B)(ii).
(b) The rules of D-5 of this section and this D-6 also apply for
purposes of applying the provisions of section 401(a)(9)(B)(iv)(II) if
a trust is named as a beneficiary of the employee's surviving spouse.
In the case of
[[Page 67784]]
payments to a trust having more than one beneficiary, see E-5 of this
section for the rules for determining the designated beneficiary whose
life expectancy will be used to determine the distribution period.
D-7. Q. If a trust is named as a beneficiary of an employee, what
documentation must be provided to the plan administrator so that the
beneficiaries of the trust who are beneficiaries with respect to the
trust's interest in the employee's benefit are identifiable to the plan
administrator?
A. (a) Required distributions commencing before death. In order to
satisfy the requirement of paragraph (b)(4) of D-5A of this section for
distributions required under section 401(a)(9) to commence before the
death of an employee, the employee must comply with either paragraph
(a)(1) or (2) of this D-7A:
(1) The employee provides to the plan administrator a copy of the
trust instrument and agrees that if the trust instrument is amended at
any time in the future, the employee will, within a reasonable time,
provide to the plan administrator a copy of each such amendment.
(2) The employee--
(i) Provides to the plan administrator a list of all of the
beneficiaries of the trust (including contingent and remainderman
beneficiaries with a description of the conditions on their
entitlement);
(ii) Certifies that, to the best of the employee's knowledge, this
list is correct and complete and that the requirements of paragraphs
(b)(1), (2), and (3) of D-5A of this section are satisfied;
(iii) Agrees to provide corrected certifications to the extent that
an amendment changes any information previously certified; and
(iv) Agrees to provide a copy of the trust instrument to the plan
administrator upon demand.
(b) Required distributions after death. In order to satisfy the
documentation requirement of this D-7 for required distributions after
death, by the end of the ninth month beginning after the death of the
employee, the trustee of the trust must either--
(1) Provide the plan administrator with a final list of all of the
beneficiaries of the trust (including contingent and remainderman
beneficiaries with a description of the conditions on their
entitlement) as of the date of death; certify that, to the best of the
trustee's knowledge, this list is correct and complete and that the
requirements of paragraph (b)(1), (2), and (3) of D-5A of this section
are satisfied as of the date of death; and agree to provide a copy of
the trust instrument to the plan administrator upon demand; or
(2) Provide the plan administrator with a copy of the actual trust
document for the trust that is named as a beneficiary of the employee
under the plan as of the employee's date of death.
(c) Relief for discrepancy between trust instrument and employee
certifications or earlier trust instruments. (1) If required
distributions are determined based on the information provided to the
plan administrator in certifications or trust instruments described in
paragraph (a)(1), (a)(2) or (b) of this D-7A, a plan will not fail to
satisfy section 401(a)(9) merely because the actual terms of the trust
instrument are inconsistent with the information in those
certifications or trust instruments previously provided to the plan
administrator, but only if the plan administrator reasonably relied on
the information provided and the minimum required distributions for
calendar years after the calendar year in which the discrepancy is
discovered are determined based on the actual terms of the trust
instrument. For purposes of determining whether the plan satisfies
section 401(a)(9) for calendar years after the calendar year in which
the discrepancy is discovered, if the actual beneficiaries under the
trust instrument are different from the beneficiaries previously
certified or listed in the trust instrument previously provided to the
plan administrator, or the trust instrument specifying the actual
beneficiaries does not satisfy the other requirements of paragraph (b)
of D-5A of this section, the minimum required distribution will be
determined by treating the beneficiaries of the employee as having been
changed in the calendar year in which the discrepancy was discovered to
conform to the corrected information and by applying the change in
beneficiary provisions of E-5 of this section.
(2) For purposes of determining the amount of the excise tax under
section 4974, the minimum required distribution is determined for any
year based on the actual terms of the trust in effect during the year.
* * * * *
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 97-33393 Filed 12-29-97; 8:45 am]
BILLING CODE 4830-01-U