[Federal Register Volume 63, Number 243 (Friday, December 18, 1998)]
[Rules and Regulations]
[Pages 70009-70012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32938]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 602
[TD 8796]
RIN 1545-AU05
Notice, Consent and Election Requirements of Sections 411(a)(11)
and 417 for Qualified Retirement Plans
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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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 for
qualified retirement plans. These regulations finalize proposed
regulations published in the Federal Register on September 22, 1995. In
order to avoid delay in the commencement of distributions, the
regulations generally allow distributions to commence, with spousal
consent if required, in less than 30 days after a participant receives
a notice of distribution rights if the participant affirmatively so
elects to have the distributions commence. The regulations affect
employers that maintain qualified plans, and participants and
beneficiaries in those plans.
DATES: These regulations are effective December 18, 1998.
FOR FURTHER INFORMATION CONTACT: Robert Walsh, (202) 622-6090 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
The collection of information contained in these final regulations
has been reviewed and approved by the Office of Management and Budget
in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under
the control number 1545-1471. Responses to this collection of
information are mandatory.
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.
The estimated burden per respondent is .011 hours.
Comments concerning the accuracy of this burden estimate and
suggestions for reducing this burden should be sent to the Internal
Revenue Service, Attn: IRS Reports Clearance Officer, OP:FS:FP,
Washington, DC 20224, and 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.
Books or records relating to this 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). These
regulations finalize proposed regulations that were published as a
notice of proposed rulemaking (EE-24-93) (REG-209626-93) in the Federal
Register (60 FR 49236) on September 22, 1995. The notice of proposed
rulemaking states that the text of the proposed regulations is the same
as the text of temporary regulations which were published in the
Federal Register (60 FR 49218) on the same day. A public hearing was
held on the temporary regulations on April 24, 1996.
As indicated in Announcement 98-87 (1998-40 I.R.B. 11), the
temporary regulations automatically expired in September, 1998,
pursuant to section 7805(e). Announcement 98-87 provides, however, that
plan sponsors may rely upon the identical proposed regulations until
they are amended or finalized.
Prior to the issuance of the proposed regulations, Sec. 1.411(a)-
11(c) provided that a participant's consent to a distribution under
section 411(a)(11) was not valid unless the participant received 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 set
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) (QJSA explanation).
Temporary regulations providing guidance on the amendment to
section 402(f) made by the Unemployment Compensation Amendments of 1992
(UCA), published in October 1992, generally prescribed this 90/30-day
time period for purposes of the notice requirement under that section.
In the preamble to the UCA temporary 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 comments on the 90/30-day time period, the proposed
regulations modified the 30-day time period for purposes of sections
411(a)(11) and 417. Under the proposed regulations, 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.
The proposed regulations under section 417 made the same change to
Sec. 1.417(e)-1 and also provided a more limited modification to the
30-day time period in Sec. 1.417(e)-1. The reception to this change to
the 30-day period for purposes of section 417 was generally favorable.
Commentators expressed concern about the restatement in the
proposed regulations of the statutory requirement that the QJSA
explanation be provided before the annuity starting date because
[[Page 70010]]
this requirement precluded retroactive annuity payments for any period
before the explanation was provided. Subsequently, section 1451 of the
Small Business Job Protection Act of 1996, Public Law 104-188, 110
Stat. 1755 (SBJPA) added section 417(a)(7) to the Internal Revenue Code
effective for plan years beginning on or after January 1, 1997. Section
417(a)(7) permits the plan to provide the QJSA explanation after the
annuity starting date.
After consideration of the comments, these final regulations
generally adopt the provisions of the proposed regulations. However,
the final regulations under section 417 have been modified to provide
that, for plan years beginning after December 31, 1996, the requirement
that the QJSA explanation be provided before the annuity starting date
does not apply to the extent provided under section 417(a)(7).
Explanation of Provisions
1. Overview of Statutory Provisions
Section 411(a)(11) provides that, if the value of a participant's
accrued benefit exceeds $5,000, 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 (QJSA explanation).
Section 417(a)(7)(B), added by SBJPA, codified the provision in the
proposed regulations which provides that a plan may permit a
participant to elect (with applicable spousal consent) a distribution
with an annuity starting date after the QJSA explanation was provided
but before 30 days have elapsed, as long as the distribution commences
more than seven days after the explanation was provided. As discussed
above, section 417(a)(7)(A) further provides that a plan is permitted
to provide the QJSA explanation after the annuity starting date if the
distribution commences at least 30 days after such explanation was
provided, subject to the same waiver of the 30-day minimum waiting
period. This is intended to allow retroactive payments of benefits
which are attributable to the period before the explanation.
2. Waiver of 30-day Period for QJSA Explanation
The proposed regulations permit a plan administrator (where not
inconsistent with the terms of the plan) to commence distributions
before the end of the 30-day time period after the QJSA explanation is
provided, 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 QJSA explanation was provided to the participant.
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.
Most commentators expressed approval of this change to the 30-day
waiting period. However, one commentator indicated that this change
would create an incentive for participants to pressure their spouses to
consent to any waiver of the QJSA as quickly as possible. Because it
has been codified by section 417(a)(7)(B), the final regulations retain
this waiver provision.
3. Provision of QJSA Explanation After Annuity Starting Date
The proposed regulations provide that 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.
Commentators indicated that this rule disadvantaged participants
because it does not allow a retroactive annuity starting date to a date
before the QJSA explanation was provided. However, prior to its
amendment by SBJPA, the plain language of section 417 required the QJSA
explanation to be provided before the annuity starting date.
As discussed above, section 1451 of the SBJPA added section
417(a)(7)(A) to the Code. That section provides that a plan may provide
the QJSA explanation after the annuity starting date and that the
applicable election period shall not end before the 30th day after the
date on which the explanation is provided. Thus, section 417(a)(7)(A)
allows retroactive payments of benefits which are attributable to the
period before the QJSA explanation is provided. Accordingly, the final
regulations provide that, for plan years beginning after December 31,
1996, the requirement that the QJSA explanation be provided before the
annuity starting date does not apply to the extent provided under
section 417(a)(7).
Section 417(a)(7)(A) provides that the Secretary may by regulations
limit its application except that such regulations may not limit the
period of time by which the annuity starting date precedes the
provision of the written explanation other than by providing that the
annuity starting date may not be earlier than termination of
employment.
4. Use of Electronic Media for Notices and Consent
Comments on the proposed regulations requested that the IRS and
Treasury clarify the extent to which plans may use new technologies,
including electronic media, for providing notices under sections
402(f), 411(a)(11) and 417, and for receiving participant and
beneficiary consents and elections under sections 411(a)(11) and 417.
Subsequently, section 1510 of the Taxpayer Relief Act of 1997 (TRA '97)
provided generally for the Secretary of the Treasury to issue guidance
concerning the use of new technologies in the administration of
retirement plans. Announcement 98-62 (1998-29 I.R.B. 13) requested
comments on the guidance described in section 1510.
After consideration of the comments on the proposed regulations and
Announcement 98-62, the IRS and Treasury have decided to propose
regulations regarding the use of electronic media to provide notices
under sections 402(f), 411(a)(11), and section 3405(e)(10) and for
receiving participant consent under section 411(a)(11). Those proposed
regulations are set forth in a notice of proposed
[[Page 70011]]
rulemaking published elsewhere in this issue of the Federal Register.
5. 90-day Time Period
Comments on the proposed regulations requested an expansion of the
90-day time period, and the IRS and the Treasury have decided to
propose changes to the 90/30-day period for providing notices under
sections 402(f) and 411(a)(11). These changes are included in the
proposed regulations on the use of new technologies, which are set
forth in a notice of proposed rulemaking published elsewhere in this
issue of the Federal Register.
6. Effective Dates
The regulations apply to distributions on or after September 22,
1995. However, plan sponsors and plan administrators may rely on the
regulations under section 411(a)(11) as though they were included in
the final regulations under section 411(a)(11) published in 1988-2 C.B.
48.
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)
does not apply to these regulations, and because the notice of proposed
rulemaking was issued prior to March 29, 1996, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to
section 7805(f) of the Internal Revenue Code, the notice of proposed
rulemaking preceding these regulations was 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 Robert Walsh, 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 * * *
Par. 2. Section 1.411(a)-11 is amended as follows:
1. Paragraph (c)(2)(ii) is revised.
2. Paragraphs (c)(2)(iii), (c)(2)(iv), (c)(2)(v) and (c)(8) are
added.
The revision and additions read as follows:
Sec. 1.411(a)-11 Restriction and valuation of distributions.
* * * * *
(c) * * *
(2) * * *
(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.
* * * * *
(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.
* * * * *
Sec. 1.411(a)-11T [Removed]
Par. 3. Section 1.411(a)-11T is removed.
Par. 4. Section 1.417(e)-1 is amended as follows:
1. Paragraph (b)(3) is revised.
2. Paragraph (b)(4) is added.
The revision and addition 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. (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 (except as otherwise
provided by section 417(a)(7) for plan years beginning after December
31, 1996). 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 (except as
otherwise provided by section 417(a)(7) for plan years beginning after
December 31, 1996). However, the plan may permit the annuity starting
date to be before the date that any affirmative distribution
[[Page 70012]]
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.
(iv) The additional rules of this paragraph (b)(3) concerning the
notice and consent requirements of section 417 apply to distributions
on or after September 22, 1995. 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) in effect prior to
September 22, 1995 (see Sec. 1.417(e)-1 (b)(3) in 26 CFR Part 1 revised
as of April 1, 1995) apply.
(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.
* * * * *
Sec. 1.417(e)-1T [Amended]
Par. 5. In Sec. 1.417(e)-1T, paragraphs (b)(3) and (4) are removed.
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, the table in paragraph (c) is amended by
removing the entry for 1.411(a)-11T and adding the following entries in
numerical order to read as follows:
Sec. 602.101 OMB Control numbers.
* * * * *
(c) * * *
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Current OMB
CFR part or section where identified and described control No.
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* * * * *
1.411(a)-11................................................ 1545-1471
* * * * *
1.417(e)-1................................................. 1545-1471
* * * * *
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John M. Dalrymple,
Acting Deputy Commissioner of Internal Revenue.
Approved: December 2, 1998.
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 98-32938 Filed 12-17-98; 8:45 am]
BILLING CODE 4830-01-U