[Federal Register Volume 63, Number 244 (Monday, December 21, 1998)]
[Proposed Rules]
[Pages 70356-70357]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-32929]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-113694-98]
RIN 1545-AW59


Increase in Cash-Out Limit Under Sections 411(a)(7), 411(a)(11), 
and 417(e)(1)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking by cross-reference to temporary 
regulations and notice of proposed rulemaking.

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SUMMARY: In the Rules and Regulations section of this issue of the 
Federal Register, the IRS is issuing temporary regulations providing 
guidance relating to the increase from $3,500 to $5,000 of the limit on 
distributions from qualified retirement plans that can be made without 
participant consent. This increase is contained in the Taxpayer Relief 
Act of 1997. The text of those temporary regulations also serves as a 
portion of the text of these proposed regulations. In addition, these 
proposed regulations propose the elimination, for all distributions, of 
the ``lookback rule'' pursuant to which the qualified plan benefits of 
certain participants are deemed to exceed this limit on mandatory 
distributions. These proposed regulations affect sponsors and 
administrators of qualified retirement plans, and participants in those 
plans. The text of those temporary regulations also serves as a portion 
of the text of these proposed regulations.

DATES: Written comments and requests for a public hearing must be 
received by March 22, 1999.

ADDRESSES: Send submissions to: CC:DOM:CORP:R (REG-113694-98), room 
5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered Monday through 
Friday between the hours of 8 a.m. and 5 p.m. to: CC:DOM:CORP:R (REG-
113694-98), 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: Concerning the regulations, Michael J. 
Karlan, (202) 622-6030 (not a toll-free call); concerning submissions, 
Michael Slaughter, (202) 622-7190 (not a toll-free call).

SUPPLEMENTARY INFORMATION:

Background

    Temporary regulations in the Rules and Regulations section of this 
issue of the Federal Register amend the Income Tax Regulations (26 CFR 
part 1) relating to the increase from $3,500 to $5,000 of the ``cash-
out limit'' described in sections 411(a)(7), 411(a)(11), and 417(e)(1) 
of the Internal Revenue Code, as amended by section 1071 of the 
Taxpayer Relief Act of 1997, Public Law 105-34, 111 Stat. 788 (1997).
    The text of the temporary regulations also serves as a portion of 
the text of the proposed regulations. The preamble to the temporary 
regulations explains the temporary regulations.
    As also discussed in the preamble to the temporary regulations, 
Sec. 1.411(a)-11(c)(3), interpreting the law prior to the enactment of 
TRA '97, provides that the written consent of a participant is required 
before the commencement of the distribution of any portion of the 
participant's accrued benefit if the present value of the 
nonforfeitable total accrued benefit is greater than $3,500. If the 
present value does not exceed $3,500, the consent requirements are 
deemed satisfied, and the plan may distribute that portion to the 
participant as a single sum. The regulation further provides that, if 
the present value determined at the time of a distribution to the 
participant exceeds $3,500, then the present value at any subsequent 
time shall be deemed to exceed $3,500; this is commonly referred to as 
the ``lookback rule.'' Section 1.417(e)-1(b)(2)(i) includes a parallel 
lookback rule.
    The temporary regulations remove the lookback rule under section 
411(a)(11) for most distributions, but preserve the rule for 
distributions pursuant to an optional form of benefit under which at 
least one scheduled periodic distribution is still payable.
    These proposed regulations remove the lookback rule under 
Secs. 1.411(a)-11(c)(3) and 1.417(e)-1(b)(2)(i). In accordance with 
section 417(e)(1), these proposed regulations also provide that, in the 
case of plans subject to sections 401(a)(11) and 417, consent is 
required after the annuity starting date for the immediate distribution 
of the present value of the accrued benefit being distributed in any 
form, including a qualified joint and survivor annuity or a qualified 
preretirement survivor annuity, regardless of the amount of that 
present value. Where only a portion of an accrued benefit is being 
distributed,

[[Page 70357]]

this provision applies only to that portion (and not to the portion 
with respect to which no distributions are being made).
    Under this removal of the lookback rule, the present value of a 
participant's nonforfeitable accrued benefit could be distributed 
without consent if the present value does not exceed $5,000, even if 
the present value of the participant's nonforfeitable accrued benefit 
exceeded $5,000 at the time of a previous distribution. Thus, if the 
present value of a participant's nonforfeitable accrued benefit 
previously had been $6,000, but is presently $4,000, these proposed 
regulations would permit the plan to be amended to permit the present 
value of that participant's nonforfeitable accrued benefit to be 
distributed without consent (provided that the distribution would not 
fail to satisfy section 417(e)(1)). The complete removal of the 
lookback rule described in these proposed regulations would become 
effective 90 days after the publication of final regulations.

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, and because the 
regulation does not impose a collection of information on small 
entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not 
apply. Pursuant to section 7805(f) of the Internal Revenue Code, this 
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 electronic and written comments (a 
signed original and eight (8) copies) that are submitted timely to the 
IRS. The IRS and Treasury specifically request comments on the clarity 
of the proposed regulations and how it may be made easier to 
understand. All comments will be available for public inspection and 
copying. A public hearing may be scheduled if requested in writing by 
any 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 Michael J. Karlan, 
Office of the Associate Chief Counsel (Employee Benefits and Exempt 
Organizations). However, other personnel from the IRS and Treasury 
Department participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Proposed Amendments to the 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 is amended by adding 
an entry in numerical order to read in part as follows:

    Authority: 26 U.S.C. 7805 * * *

    Sec. 1.411(a)-7 also issued under 26 U.S.C. 411(a)(7)(B)(i). * * *
    Par. 2. Section 1.411(a)-7 is amended by revising paragraphs 
(d)(4)(i) and (d)(4)(vi) to read as follows:


Sec. 1.411(a)-7  Definitions and special rules.

* * * * *
    (d) Rules relating to certain distributions and cash-outs of 
accrued benefits. * * *
    (4) Certain cash-outs of accrued benefits. (i) and (vi) [The text 
of proposed paragraphs (d)(4)(i) and (vi) is the same as the text of 
Sec. 1.411(a)-7T(d)(4)(i) and (vi) published elsewhere in this issue of 
the Federal Register.]
* * * * *
    Par. 3. Section 1.411(a)-11 is amended by revising paragraph (c)(3) 
to read as follows:


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

* * * * *
    (c) * * *
    (3) Cash-out limit. (i) Written consent of the participant is 
required before the commencement of the distribution of any portion of 
an accrued benefit if the present value of the nonforfeitable total 
accrued benefit is greater than the cash-out limit in effect under 
paragraph (c)(3)(ii) of this section on the date the distribution 
commences. The consent requirements are deemed satisfied if such value 
does not exceed the cash-out limit, and the plan may distribute such 
portion to the participant as a single sum. Present value for this 
purpose must be determined in the same manner as under section 417(e); 
see Sec. 1.417(e)-1(d).
    (ii) [The text of proposed paragraph (c)(3)(ii) is the same as the 
text of Sec. 1.411(a)-11T(c)(3)(ii) published elsewhere in this issue 
of the Federal Register.]
* * * * *
    Par. 4. Section 1.417(e)-1 is amended by revising the last sentence 
of paragraph (b)(2)(i) 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) * * *
    (2) * * * (i) * * * After the annuity starting date, consent is 
required for the immediate distribution of the present value of the 
accrued benefit being distributed in any form, including a qualified 
joint and survivor annuity or a qualified preretirement survivor 
annuity regardless of the amount of such present value.
* * * * *
David A. Mader,
Acting Deputy Commissioner of Internal Revenue.
[FR Doc. 98-32929 Filed 12-18-98; 8:45 am]
BILLING CODE 4830-01-P