[Federal Register Volume 68, Number 130 (Tuesday, July 8, 2003)]
[Proposed Rules]
[Pages 40581-40583]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-17089]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-112039-03]
RIN 1545-BC35


Elimination of Forms of Distribution in Defined Contribution 
Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations that would modify 
the circumstances under which certain forms of distribution previously 
available are permitted to be eliminated from qualified defined 
contribution plans. These proposed regulations affect qualified 
retirement plan sponsors, administrators, and participants. This 
document also provides notice of a public hearing on these proposed 
regulations.

DATES: Written and electronic comments and requests for a public 
hearing must be received by October 6, 2003.

ADDRESSES: Send submissions to: CC:PA:RU (REG-112039-03), 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:PA:RU (REG-112039-03), 
Courier's Desk, Internal Revenue

[[Page 40582]]

Service, 1111 Constitution Avenue NW., Washington, DC. Alternatively, 
taxpayers may submit comments electronically directly to the IRS 
Internet site at: www.irs.gov/regs.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Vernon S. 
Carter, 202-622-6060 (not a toll-free number); concerning submissions 
or hearing requests, Guy Traynor, 202-622-7180 (not a toll-free 
number).

SUPPLEMENTARY INFORMATION: 

Explanation of Provisions

    This document contains proposed amendments to 26 CFR part 1 under 
section 411(d)(6) of the Internal Revenue Code of 1986 (Code) as 
amended by the Economic Growth and Tax Relief Reconciliation Act of 
2001 (EGTRRA) (115 Stat. 117). Section 411(d)(6)(A) of the Code 
generally provides that a plan will not be treated as satisfying the 
requirements of section 411 if the accrued benefit of a participant is 
decreased by a plan amendment. Section 411(d)(6)(B) prior to amendment 
by EGTRRA provided that an amendment is treated as reducing an accrued 
benefit if, with respect to benefits accrued before the amendment is 
adopted, the amendment has the effect of either eliminating or reducing 
an early retirement benefit or a retirement-type subsidy, or, except as 
provided by regulations, eliminating an optional form of benefit.
    The IRS published TD 8900 in the Federal Register on September 6, 
2000 (65 FR 53901). TD 8900, which amended Sec.  1.411(d)-4 of the 
Income Tax Regulations, added paragraph (e) of Q&A-2 to provide for 
additional circumstances under which a defined contribution plan can be 
amended to eliminate or restrict a participant's right to receive 
payment of accrued benefits under certain optional forms of benefit.
    Section 1.411(d)-4, Q&A-2(e)(1) provides that a defined 
contribution plan may be amended to eliminate or restrict a 
participant's right to receive payment of accrued benefits under a 
particular optional form of benefit without violating the section 
411(d)(6) anti-cutback rules if, once the plan amendment takes effect 
for a participant, the alternative forms of payment that remain 
available to the participant include payment in a single-sum 
distribution form that is ``otherwise identical'' to the eliminated or 
restricted optional form of benefit. The amendment cannot apply to a 
participant for any distribution with an annuity starting date before 
the earlier of the 90th day after the participant receives a summary 
that reflects the plan amendment and that satisfies Department of 
Labor's requirements for a summary of material modifications under 29 
CFR 2520.104b-3, or the first day of the second plan year following the 
plan year in which the amendment is adopted. Section Sec.  1.411(d)-4, 
Q&A-2(e)(2) provides that a single-sum distribution form is ``otherwise 
identical'' to the optional form of benefit that is being eliminated or 
restricted only if it is identical in all respects (or would be 
identical except that it provides greater rights to the participant), 
except for the timing of payments after commencement. A single-sum 
distribution form is not ``otherwise identical'' to a specified 
installment form of benefit if the single-sum form:

    [sbull] Is not available for distribution on any date on which the 
installment form could have commenced;
    [sbull] is not available in the same medium as the installment 
form; or
    [sbull] imposes any additional condition of eligibility.

Further, an otherwise identical distribution form need not retain any 
rights or features of the eliminated or restricted optional form of 
benefit to the extent those rights or features would not be protected 
from elimination under the anti-cutback rules. The single-sum 
distribution form would not, however, be disqualified from being an 
otherwise identical distribution form if the single-sum form provides 
greater rights to participants than did the eliminated or restricted 
optional form of benefits.
    Section 645(a)(1) of EGTRRA revised section 411(d)(6) in a manner 
that is similar to Sec.  1.411(d)-4, Q&A-2(e), but without the advance 
notice condition. Section 411(d)(6)(E) of the Code provides that, 
except to the extent provided in regulations, a defined contribution 
plan is not treated as reducing a participant's accrued benefit where a 
plan amendment eliminates a form of distribution previously available 
under the plan if a single-sum distribution is available to the 
participant at the same time as the form of distribution eliminated by 
the amendment, and the single-sum distribution is based on the same or 
greater portion of the participant's account as the form of 
distribution eliminated by the amendment.
    To reflect the addition of section 411(d)(6)(E) by EGTRRA, these 
proposed regulations would amend Sec.  1.411(d)-4, Q&A-2(e). Under 
these amendments, the regulations would retain the rules under which a 
defined contribution plan may be amended to eliminate or restrict a 
participant's right to receive payment of accrued benefits under a 
particular optional form of benefit without violating the section 
411(d)(6) anti-cutback rules if, once the plan amendment takes effect 
for a participant, the alternative forms of payment that remain 
available to the participant include payment in a single-sum 
distribution. However, these proposed regulations would remove the 90-
day notice condition previously applicable to these plan amendments.\1\
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    \1\ The Department of Labor has advised Treasury and the IRS 
that it should be noted that plans covered by Title I of ERISA will 
continue to be subject to the requirement under Title I that plan 
amendments be described in a timely summary of material 
modifications (SMM) or a revised summary plan description (SPD) to 
be distributed to plan participants and beneficiaries in accordance 
with applicable Department of Labor disclosure rules (see 29 CFR 
2520.104b-3).''
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    Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 
47713), the Secretary of the Treasury has interpretive jurisdiction 
over the subject matter addressed in these regulations for purposes of 
the Employee Retirement Income Security Act of 1974 (ERISA), as well as 
the Code. Section 204(g)(2) of ERISA, as amended by EGTRRA, provides a 
parallel rule to section 411(d)(6)(E) of the Code that applies under 
Title I of ERISA, and authorizes the Secretary of the Treasury to 
provide exception to this parallel ERISA requirement. Therefore, these 
regulations apply for purposes of the parallel requirements of sections 
204(g)(2) of ERISA, as well as for section 411(d)(6)(E) of the Code.

Effective Date and Applicability Date

    The proposed regulations are proposed to apply on the date of 
publication of final regulations in the Federal Register.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 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 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.

[[Page 40583]]

Drafting Information

    The principal author of these regulations is Vernon S. Carter of 
the Office of the Division Counsel/Associate Chief Counsel (Tax Exempt 
and Government Entities). However, other personnel from the IRS and 
Treasury participated in their development.

List of Subjects in 26 CFR Parts 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

    Accordingly, 26 CFR part 1 is proposed to be amended as follows:
    Paragraph 1. The authority citation for part 1 is amended to read 
in part as follows:

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

    Section 1.411(d)-4, Q&A-2(e) also issued under 26 U.S.C. 
411(d)(6)(E). * * *
    Par. 2. Section 1.411(d)-4, Q&A-2(e) is revised to read as follows:


Sec.  1.411(d)-4  Section 411(d)(6) protected benefits.

* * * * *
    A-2: * * *
    (e) Permitted plan amendments affecting alternative forms of 
payment under defined contribution plans--(1) General rule. A defined 
contribution plan does not violate the requirements of section 
411(d)(6) merely because the plan is amended to eliminate or restrict 
the ability of a participant to receive payment of accrued benefits 
under a particular optional form of benefit if, after the plan 
amendment is effective with respect to the participant, the alternative 
forms of payment available to the participant include payment in a 
single-sum distribution form that is otherwise identical to the 
optional form of benefit that is being eliminated or restricted.
    (2) Otherwise identical single-sum distribution. For purposes of 
this paragraph (e), a single-sum distribution form is otherwise 
identical to an optional form of benefit that is eliminated or 
restricted pursuant to paragraph (e)(1) of this Q&A-2 only if the 
single-sum distribution form is identical in all respects to the 
eliminated or restricted optional form of benefit (or would be 
identical except that it provides greater rights to the participant) 
except with respect to the timing of payments after commencement. For 
example, a single-sum distribution form is not otherwise identical to a 
specified installment form of benefit if the single-sum distribution 
form is not available for distribution on the date on which the 
installment form would have been available for commencement, is not 
available in the same medium of distribution as the installment form, 
or imposes any condition of eligibility that did not apply to the 
installment form. However, an otherwise identical distribution form 
need not retain rights or features of the optional form of benefit that 
is eliminated or restricted to the extent that those rights or features 
would not be protected from elimination or restriction under section 
411(d)(6) or this section.
    (3) Example. The following example illustrates the application of 
this paragraph (e):

    Example.  (i) P is a participant in Plan M, a qualified profit-
sharing plan with a calendar plan year that is invested in mutual 
funds. The distribution forms available to P under Plan M include a 
distribution of P's vested account balance under Plan M in the form 
of distribution of various annuity contract forms (including a 
single life annuity and a joint and survivor annuity). The annuity 
payments under the annuity contract forms begin as of the first day 
of the month following P's severance from employment (or as of the 
first day of any subsequent month, subject to the requirements of 
section 401(a)(9)). P has not previously elected payment of benefits 
in the form of a life annuity, and Plan M is not a direct or 
indirect transferee of any plan that is a defined benefit plan or a 
defined contribution plan that is subject to section 412. 
Distributions on the death of a participant are made in accordance 
with plan provisions that comply with section 401(a)(11)(B)(iii)(I). 
On May 2, 2004, Plan M is amended so that, after the amendment is 
effective, P is no longer entitled to any distribution in the form 
of the distribution of an annuity contract. However, after the 
amendment is effective, P is entitled to receive a single-sum cash 
distribution of P's vested account balance under Plan M payable as 
of the first day of the month following P's severance from 
employment (or as of the first day of any subsequent month, subject 
to the requirements of section 401(a)(9)). The amendment does not 
apply to P if P elects to have annuity payments begin before July 1, 
2004.
    (ii) Plan M does not violate the requirements of section 
411(d)(6) (or section 401(a)(11)) merely because, as of July 1, 
2004, the plan amendment has eliminated P's option to receive a 
distribution in any of the various annuity contract forms previously 
available.

    (4) Effective date. This paragraph (e) is applicable on the date of 
publication of final regulations in the Federal Register.
* * * * *

Robert E. Wenzel,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 03-17089 Filed 7-7-03; 8:45 am]
BILLING CODE 4830-01-P