[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) * * *

------------------------------------------------------------------------
                                                             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