[Federal Register Volume 68, Number 242 (Wednesday, December 17, 2003)]
[Rules and Regulations]
[Pages 70141-70150]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31033]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 9099]
RIN 1545-BA78


Disclosure of Relative Values of Optional Forms of Benefit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations that consolidate the 
content requirements applicable to explanations of qualified joint and 
survivor annuities and qualified preretirement survivor annuities 
payable under certain retirement plans, and specify requirements for 
disclosing the relative value of optional forms of benefit that are 
payable from certain retirement plans in lieu of a qualified joint and 
survivor annuity. These regulations affect plan sponsors and 
administrators, and participants in and beneficiaries of, certain 
retirement plans.

DATES: Effective Date: These final regulations are effective on 
December 17, 2003.
    Applicability Date: These final regulations are applicable to QJSA 
explanations with respect to distributions with annuity starting dates 
on or after October 1, 2004, and to QPSA explanations provided on or 
after July 1, 2004.

FOR FURTHER INFORMATION CONTACT: John T. Ricotta at (202) 622-6060 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information (requirement to disclose 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 of 1995 (44 U.S.C. 3507(d)) under control number 1545-
0928. 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 it displays a valid 
control number assigned by the Office of Management and Budget.
    The estimated annual burden per respondent varies from .01 to .99 
hours, depending on individual circumstances, with an estimated average 
of .5 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, SE:W:CAR:MP:T:SP, 
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 a collection of information must be 
retained as long as their contents might 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 26 CFR part 1 under section 
417(a)(3) of the Internal Revenue Code of 1986 (Code).
    A qualified retirement plan to which section 401(a)(11) applies 
must pay a vested participant's retirement benefit under the plan in 
the form of a qualified joint and survivor annuity (QJSA), except as 
provided in section 417. Section 401(a)(11) applies to defined benefit 
plans, money purchase pension plans, and certain other defined 
contribution plans. A QJSA is defined in section 417(b) as an annuity 
for the life of the participant with a survivor annuity for the life of 
the spouse (if the participant is married) that is not less than 50 
percent of (and is not greater than 100 percent of) the amount of the 
annuity that is payable during the joint lives of the participant and 
the spouse. Under section 417(b)(2), a QJSA for a married participant 
generally must be the actuarial equivalent of the single life annuity 
benefit payable for the life of the participant. However, a plan is 
permitted to subsidize the QJSA for a married participant. If the plan 
fully subsidizes the QJSA for a married participant so that failure to 
waive the QJSA would not result in reduced payments over the life of 
the participant compared to the single life annuity benefit, then the 
plan need not provide an election to waive the QJSA. See section 
417(a)(5).
    For a married participant, the QJSA must be at least as valuable as 
any other optional form of benefit payable under the plan at the same 
time. See Sec.  1.401(a)-20, Q&A-16. Further, the anti-forfeiture rules 
of section 411(a) prohibit a participant's benefit under a defined 
benefit plan from being satisfied through payment of a form of benefit 
that is actuarially less valuable than the value of the participant's 
accrued benefit expressed in the form of an annual benefit commencing 
at normal retirement age. These determinations must be made using 
reasonable actuarial assumptions. However, see Sec.  1.417(e)-1(d) for 
actuarial assumptions required for use in certain present value 
calculations.
    If a plan provides a subsidy for one optional form of benefit 
(i.e., the payments under an optional form of benefit have an actuarial 
present value that is greater than the actuarial present value of the 
accrued benefit), there is no requirement to extend a similar subsidy 
(or any subsidy) to every other optional form of benefit. Thus, for 
example, a participant might be entitled to receive a single-sum 
distribution upon early retirement that does not reflect any early 
retirement subsidy in lieu of a QJSA that reflects a substantial early 
retirement subsidy. As a further example, a participant might be 
entitled to receive a single-sum distribution at normal retirement age 
in lieu of a QJSA that is subsidized as described in section 417(a)(5).
    Section 417(a) provides rules under which a participant (with 
spousal consent) may waive payment of the participant's benefit in the 
form of a QJSA. Section 417(a)(3) provides that a plan must provide to 
each participant, within a reasonable period before the annuity 
starting date (and consistent with such regulations as the Secretary 
may prescribe), a written explanation of the terms and conditions of 
the QJSA, the participant's right to make, and the effect of, an 
election to waive the QJSA form of benefit, the rights of the 
participant's spouse, and the right to revoke (and the effect of the 
revocation of) an election to waive the QJSA form of benefit.
    Section 205 of the Employee Retirement Income Security Act of 1974 
(ERISA), Public Law 93-406 (88 Stat. 829) as subsequently amended, 
provides rules that are parallel to the rules of sections 401(a)(11) 
and 417 of the Internal Revenue Code. In particular, section 205(c)(3) 
of ERISA provides a rule parallel to the rule of section 417(a)(3) of 
the Code.
    Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 
47713), the Secretary of the Treasury has interpretative jurisdiction 
over the ERISA provisions that are parallel to the

[[Page 70142]]

Code provisions addressed in these regulations. Therefore, these 
regulations apply for purposes of section 205(c)(3) of ERISA, as well 
as for section 417(a)(3) of the Code.
    Regulations governing the requirements for waiver of a QJSA were 
published in the Federal Register on August 19, 1988 (TD 8219; 53 FR 
31837). Section 1.401(a)-20, Q&A-36, provides rules for the explanation 
that must be provided under section 417(a)(3) as a prerequisite to 
waiver of a QJSA. Section 1.401(a)-20, Q&A-36, requires that such a 
written explanation contain a general description of the eligibility 
conditions and other material features of the optional forms of benefit 
and sufficient additional information to explain the relative values of 
the optional forms of benefit available under the plan (e.g., the 
extent to which optional forms are subsidized relative to the normal 
form of benefit or the interest rates used to calculate the optional 
forms). In addition, Sec.  1.401(a)-20, Q&A-36, provides that the 
written explanation must comply with the requirements set forth in 
Sec.  1.401(a)-11(c)(3). Section 1.401(a)-11(c)(3) was issued prior to 
the enactment of section 417, and provides rules relating to written 
explanations that were required prior to a participant's election of a 
preretirement survivor annuity or election to waive a joint and 
survivor annuity. Section 1.401(a)-11(c)(3)(i)(C) provides that such a 
written explanation must contain a general explanation of the relative 
financial effect of these elections on a participant's annuity.
    In addition, under section 411 and Sec.  1.411(a)-11(c), so long as 
a benefit is immediately distributable (within the meaning of Sec.  
1.411(a)-11(c)(4)), a participant must be informed of his or her right 
to defer that distribution. This requirement is independent of the 
section 417 requirements addressed in these regulations.
    Concerns have been expressed that, in certain cases, the 
information provided to participants under section 417(a)(3) regarding 
the available distribution forms does not adequately enable them to 
compare those distribution forms without professional advice. In 
particular, participants who are eligible for both subsidized annuity 
distributions and unsubsidized single-sum distributions may be 
receiving notices that do not adequately explain the value of the 
subsidy that is foregone if the single-sum distribution is elected. In 
such a case, merely disclosing the amount of the single-sum 
distribution and the amount of annuity payments, or merely stating that 
the single sum distribution does not include the subsidy that is 
included in the annuity payments, may not adequately enable those 
participants to make an informed comparison of the relative values of 
those distribution forms, even if the interest rate used to derive the 
single sum is disclosed. Furthermore, questions have been raised as to 
how the relative values of optional forms of benefit are required to be 
expressed under current regulations.
    Accordingly, proposed regulations were published in the Federal 
Register on October 7, 2002 (67 FR 62417) that would consolidate the 
content requirements applicable to explanations of qualified joint and 
survivor annuities and qualified preretirement survivor annuities 
payable under certain retirement plans, and provide disclosure 
requirements that would enable participants to compare the relative 
values of the available distribution forms using more readily 
understandable information.
    After consideration of the comments received concerning the 
proposed regulations, these final regulations adopt provisions of the 
proposed regulations with certain modifications, the most significant 
of which are highlighted below.

Explanation of Provisions

    These regulations provide guidance regarding the required 
description of the relative values of optional forms of benefit 
compared to the value of the QJSA and the content of the required 
disclosure of relative values. Commentators generally approved of the 
increased disclosure that would result from the approach in the 
proposed regulations, and these final regulations are substantially 
similar to the proposed regulations.
    As under the proposed regulations, the description of the relative 
value of an optional form of benefit compared to the value of the QJSA 
must be expressed in a manner that provides a meaningful comparison of 
the relative economic values of the two forms of benefit without the 
participant having to make calculations using interest or mortality 
assumptions. In order to provide this comparison, the benefit under one 
or both optional forms of benefit must be converted, taking into 
account the time value of money and life expectancies, so that both are 
expressed in the same form. While one commentator requested that the 
regulations only permit comparisons to be made on the basis of present 
value, the regulations do not take this approach. Instead, the final 
regulations retain the examples of techniques that may be used for this 
comparison that were included in the proposed regulation: expressing 
the actuarial present value of the optional form of benefit as a 
percentage or factor of the actuarial present value of the QJSA; 
stating the amount of an annuity payable at the same time and under the 
same conditions as the QJSA that is the actuarial equivalent of the 
optional form of benefit; or stating the actuarial present value of 
both the QJSA and the optional form of benefit. However, a specific 
example has been added illustrating the use of the actuarial present 
value to express relative value.
    The comparisons required under the proposed regulations depended on 
which form of benefit constitutes the QJSA for the participant. One 
commentator noted that this would result in a different comparison for 
married and unmarried participants, creating an unnecessary burden for 
plan sponsors in situations where the benefit options are identical for 
married and unmarried participants. Furthermore, if the plan sponsor 
did not know whether a participant is married, the plan would need to 
provide comparisons that covered both possibilities. In response to the 
comment, the final regulations permit a plan to use a uniform basis of 
comparison of relative value (i.e., either the QJSA for married 
participants or the QJSA for unmarried participants) for both married 
and unmarried participants, if the benefit options are the same for 
married and unmarried participants. Thus, in a plan in which the 
applicable QJSA form for unmarried participants is a straight life 
annuity and the applicable QJSA form for married participants is a 50 
percent joint and contingent annuity (and each of these forms of 
distribution are available to all participants on the same terms), the 
plan may choose to compare the relative value of the plan's optional 
forms of benefit to the value of the straight life annuity with respect 
to the required disclosure for all participants or the plan may choose 
to compare the relative value of the plan's optional forms of benefit 
to the value of the 50 percent joint and contingent annuity with 
respect to the required disclosure for all participants.
    Since disclosing the relative value of every optional form of 
benefit regardless of the degree of subsidy may be too burdensome, and 
may provide participants with information that appears more precise 
than is warranted based on the inexact nature of the actuarial 
assumptions used, the final regulations follow the proposed regulation 
in providing for certain simplifications in the disclosure. Under one 
simplification, two or more optional forms of benefit that have 
approximately

[[Page 70143]]

the same value could be grouped for purposes of disclosing relative 
value. Under the proposed regulations, two or more optional forms of 
benefit were treated as having approximately the same value if those 
optional forms of benefit varied in relative value in comparison to the 
value of the QJSA by 5 percentage points or less when the relative 
value comparison is made by expressing the actuarial present value of 
each of those optional forms of benefit as a percentage of the 
actuarial present value of the QJSA.
    Several commentators recommended changes in this 5 percentage point 
band. One commentator suggested that a band of 7.5 percentage points be 
used to simplify compliance and ease the administrative burden to 
plans. The commentator said that a band of 7.5 percentage points would 
allow a plan to treat unsubsidized optional forms of benefit for 
virtually all retiring participants as having approximately equal 
value. By contrast, another commentator favored a maximum band of 3 
percentage points in order for participants to receive adequate 
disclosure about significant differences in value. The commentator said 
that a 5 percentage point difference in value was significant enough to 
be brought to the participant's attention.
    These final regulations generally retain the 5 percentage point 
banding rule of the proposed regulations. This rule aims to minimize 
the compliance burdens for plans to the extent consistent with 
providing participants with information on differences in value that 
are material in light of the inexact nature of the actuarial 
assumptions used.
    The proposed regulations also would have allowed a plan to treat 
all of its forms of benefit as approximately equal in value if the 
actuarial present value of all of those forms is not less than 95 
percent of the actuarial present value of the QJSA. The final 
regulations permit a plan that is comparing the relative value of each 
optional form to the value of the QJSA for a married participant to 
treat each presently available optional form of benefit that has an 
actuarial present value of at least 95 percent of the actuarial present 
value of the QJSA as having approximately the same value as the QJSA. 
In addition, in the case of a plan that is comparing the relative value 
of each optional form to the value of the single life annuity, if all 
of the optional forms of benefit presently available have actuarial 
present values that are at least 95 percent, but not greater than 102.5 
percent, of the actuarial present value of the presently available 
single life annuity, the plan is permitted to treat all the presently 
available forms of distribution as approximately equal in value.
    Some commentators recommended that participants have the right to 
know what actuarial assumptions were used in the plan's estimates of 
relative value. The final regulations require that this information be 
made available upon request if it is not provided in the notice.
    Several commentators raised questions concerning whether the 
methods used in disclosing relative value of a plan's optional forms of 
benefit in accordance with these regulations affect the application of 
the requirement at Sec.  1.401(a)-20, Q&A-16, that the QJSA for married 
participants be at least as valuable as any other optional form of 
benefit under the plan. While this issue is not addressed in these 
final regulations, there is no requirement, or implication, that the 
same actuarial assumptions used by a plan for purposes of disclosing 
relative value in accordance with these regulations must be applied for 
purposes of the requirement in Sec.  1.401(a)-20, Q&A-16, that the QJSA 
for married participants be at least as valuable as any other optional 
form of benefit under the plan.
    One commentator requested that these regulations address the use of 
electronic media to deliver the QJSA explanation or the QPSA 
explanation. The IRS and the Treasury Department are considering the 
extent to which the QJSA explanation and the QPSA explanation, as well 
as other notices under the various Internal Revenue Code requirements 
relating to qualified retirement plans, can be provided electronically, 
taking into account the effect of the Electronic Signatures in Global 
and National Commerce Act (ESIGN), Public Law 106-229, 114 Stat. 464 
(2000). The IRS and the Treasury Department have invited comments on 
these issues, and anticipate issuing further guidance regarding 
electronic notices.
    Commentators raised a number of other issues, including issues that 
relate to basic QJSA rules that are not addressed in these regulations 
and a request for the final regulations to include model language that 
can be included in a QJSA notice. These regulations do not include 
model language for several reasons, including the wide variety of 
distribution alternatives found in plans (including the variety of 
actuarial assumptions used to calculate optional forms of benefit), the 
variations in the average participant in the plan for purposes of 
understandability, as well as inclusion in the regulations of several 
detailed examples showing how the information can be provided in order 
to disclose relative value.

Effective Date

    These final regulations are applicable to QJSA explanations with 
respect to distributions with to annuity starting dates on or after 
October 1, 2004, and to QPSA explanations provided on or after July 1, 
2004. In the case of a retroactive annuity starting date under section 
417(a)(7), when required under Sec.  1.417(e)-1(b)(3)(vi), the date of 
commencement of payments based on the retroactive annuity starting date 
is substituted for the annuity starting date for purposes of this 
effective date.

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 has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations. It is hereby 
certified that the collection of information in these regulations will 
not have a significant economic impact on a substantial number of small 
entities. This certification is based upon the fact that qualified 
retirement plans of small businesses typically commence distribution of 
benefits to few, if any, plan participants in any given year and, 
similarly, only offer elections to waive a QPSA to few, if any, 
participants in any given year. Thus, the collection of information in 
these regulations will only have a minimal economic impact on most 
small entities. Therefore, an analysis under the Regulatory Flexibility 
Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) 
of the Code, the proposed regulations preceding these regulations were 
submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on its impact on small business.

Drafting Information

    The principal authors of these regulations are Linda S.F. Marshall 
and John T. Ricotta 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 Part 1

    Income taxes, Reporting and recordkeeping requirements.

[[Page 70144]]

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAX; TAXABLE YEARS BEGINNING AFTER DECEMBER 31, 1986

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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


0
Par. 2. Paragraph (c)(3) of Sec.  1.401(a)-11 is revised to read as 
follows:


Sec.  1.401(a)-11  Qualified joint and survivor annuities.

* * * * *
    (c) * * *
    (3) Information to be provided by plan. For rules regarding the 
information required to be provided with respect to the election to 
waive a QJSA or a QPSA, see Sec.  1.417(a)(3)-1.
* * * * *

0
Par. 3. A-36 of Sec.  1.401(a)-20 is revised to read as follows:


Sec.  1.401(a)-20  Requirements of qualified joint and survivor annuity 
and qualified preretirement survivor annuity.

* * * * *
    A-36. For rules regarding the explanation of QPSAs and QJSAs 
required under section 417(a)(3), see Sec.  1.417(a)(3)-1.
* * * * *

0
Par. 4. Section 1.417(a)(3)-1 is added to read as follows:


Sec.  1.417(a)(3)-1  Required explanation of qualified joint and 
survivor annuity and qualified preretirement survivor annuity.

    (a) Written explanation requirement--(1) General rule. A plan meets 
the survivor annuity requirements of section 401(a)(11) only if the 
plan meets the requirements of section 417(a)(3) and this section 
regarding the written explanation required to be provided a participant 
with respect to a QJSA or a QPSA. A written explanation required to be 
provided to a participant with respect to either a QJSA or a QPSA under 
section 417(a)(3) and this section is referred to in this section as a 
section 417(a)(3) explanation. See Sec.  1.401(a)-20, Q&A-37, for 
exceptions to the written explanation requirement in the case of a 
fully subsidized QPSA or QJSA, and Sec.  1.401(a)-20, Q&A-38, for the 
definition of a fully subsidized QPSA or QJSA.
    (2) Time for providing section 417(a)(3) explanation--(i) QJSA 
explanation. See Sec.  1.417(e)-1(b)(3)(ii) for rules governing the 
timing of the QJSA explanation.
    (ii) QPSA explanation. See Sec.  1.401(a)-20, Q&A-35, for rules 
governing the timing of the QPSA explanation.
    (3) Required method for providing section 417(a)(3) explanation. A 
section 417(a)(3) explanation must be a written explanation. First 
class mail to the last known address of the participant is an 
acceptable delivery method for a section 417(a)(3) explanation. 
Likewise, hand delivery is acceptable. However, the posting of the 
explanation is not considered provision of the section 417(a)(3) 
explanation.
    (4) Understandability. A section 417(a)(3) explanation must be 
written in a manner calculated to be understood by the average 
participant.
    (b) Required content of section 417(a)(3) explanation--(1) Content 
of QPSA explanation. The QPSA explanation must contain a general 
description of the QPSA, the circumstances under which it will be paid 
if elected, the availability of the election of the QPSA, and, except 
as provided in paragraph (d)(3) of this section, a description of the 
financial effect of the election of the QPSA on the participant's 
benefits (i.e., an estimate of the reduction to the participant's 
estimated normal retirement benefit that would result from an election 
of the QPSA).
    (2) Content of QJSA explanation. The QJSA explanation must satisfy 
either paragraph (c) or paragraph (d) of this section. Under paragraph 
(c) of this section, the QJSA explanation must contain certain specific 
information relating to the benefits available under the plan to the 
particular participant. Alternatively, under paragraph (d) of this 
section, the QJSA explanation can contain generally applicable 
information in lieu of specific participant information, provided that 
the participant has the right to request additional information 
regarding the participant's benefits under the plan.
    (c) Participant-specific information required to be provided--(1) 
In general. A QJSA explanation satisfies this paragraph (c) if it 
provides the following information with respect to each of the optional 
forms of benefit presently available to the participant (i.e., optional 
forms of benefit with an annuity starting date for which the QJSA 
explanation applies)--
    (i) A description of the optional form of benefit;
    (ii) A description of the eligibility conditions for the optional 
form of benefit;
    (iii) A description of the financial effect of electing the 
optional form of benefit (i.e., the amount payable under the form of 
benefit to the participant during the participant's lifetime and the 
amount payable after the death of the participant);
    (iv) In the case of a defined benefit plan, a description of the 
relative value of the optional form of benefit compared to the value of 
the QJSA, in the manner described in paragraph (c)(2) of this section; 
and
    (v) A description of any other material features of the optional 
form of benefit.
    (2) Requirement for numerical comparison of relative values--(i) In 
general. The description of the relative value of an optional form of 
benefit compared to the value of the QJSA under paragraph (c)(1)(iv) of 
this section must be expressed to the participant in a manner that 
provides a meaningful comparison of the relative economic values of the 
two forms of benefit without the participant having to make 
calculations using interest or mortality assumptions. Thus, in 
performing the calculations necessary to make this comparison, the 
benefits under one or both optional forms of benefit must be converted, 
taking into account the time value of money and life expectancies, so 
that the values of both optional forms of benefit are expressed in the 
same form. For example, such a comparison may be expressed to the 
participant using any of the following techniques--
    (A) Expressing the actuarial present value of the optional form of 
benefit as a percentage or factor of the actuarial present value of the 
QJSA;
    (B) Stating the amount of the annuity that is the actuarial 
equivalent of the optional form of benefit and that is payable at the 
same time and under the same conditions as the QJSA; or
    (C) Stating the actuarial present value of both the optional form 
of benefit and the QJSA.
    (ii) Use of one form for both married and unmarried individuals--
(A) In general. Under the rules of this paragraph (c)(2)(ii), in lieu 
of providing different QJSA explanations for married and unmarried 
individuals, the plan may provide a QJSA explanation to an individual 
that does not vary based on the participant's marital status. Except as 
specifically provided in paragraph (c)(3)(iii) of this section, any 
reference in this section to comparing the relative value of an 
optional form of benefit to the value of the QJSA may be satisfied 
using the substitution permitted under paragraph (c)(2)(ii)(B) or (C) 
of this section.
    (B) Substitution of single life annuity for married individual. For 
a married participant, in lieu of comparing the value of each optional 
form of benefit presently available to the participant to the value of 
the QJSA, the plan can

[[Page 70145]]

compare the value of each optional form of benefit (including the QJSA) 
to the value of a QJSA for an unmarried participant (i.e., a single 
life annuity), but only if that same single life annuity is available 
to that married participant.
    (C) Substitution of joint and survivor annuity for unmarried 
individual. For an unmarried participant, in lieu of comparing the 
value of each optional form of benefit presently available to the 
participant to the value of the QJSA for that individual (which is a 
single life annuity), the plan can compare the value of each optional 
form of benefit (including the single life annuity) to the value of the 
joint and survivor annuity that is the QJSA for a married participant, 
but only if that same joint and survivor annuity is available to that 
unmarried participant.
    (iii) Simplified presentations permitted--(A) Grouping of certain 
optional forms. Two or more optional forms of benefit that have 
approximately the same value may be grouped for purposes of a required 
numerical comparison described in this paragraph (c)(2). For this 
purpose, two or more optional forms of benefit have approximately the 
same value if none of those optional forms of benefit vary in relative 
value in comparison to the value of the QJSA by more than 5 percentage 
points when the relative value comparison is made by expressing the 
actuarial present value of each of those optional forms of benefit as a 
percentage of the actuarial present value of the QJSA. For such a group 
of optional forms of benefit, the requirement relating to disclosing 
the relative value of each optional form of benefit compared to the 
value of the QJSA can be satisfied by disclosing the relative value of 
any one of the optional forms in the group compared to the value of the 
QJSA, and disclosing that the other optional forms of benefit in the 
group are of approximately the same value. If a single-sum distribution 
is included in such a group of optional forms of benefit, the single-
sum distribution must be the distribution form that is used for 
purposes of this comparison.
    (B) Representative relative value for grouped optional forms. If, 
in accordance with paragraph (c)(2)(iii)(A) of this section, two or 
more optional forms of benefits are grouped, the relative values for 
all of the optional forms of benefit in the group can be stated using a 
representative relative value as the approximate relative value for the 
entire group. For this purpose, a representative relative value is any 
relative value that is not less than the relative value of the member 
of the group of optional forms of benefit with the lowest relative 
value and is not greater than the relative value of the member of that 
group with the highest relative value when measured on a consistent 
basis. For example, if three grouped optional forms have relative 
values of 87.5 percent, 89 percent, and 91 percent of the value of the 
QJSA, all three optional forms can be treated as having a relative 
value of approximately 90 percent of the value of the QJSA. As required 
under paragraph (c)(2)(iii)(A) of this section, if a single-sum 
distribution is included in the group of optional forms of benefit, the 
90 percent relative factor of the value of the QJSA must be disclosed 
as the approximate relative value of the single sum, and the other 
forms can be described as having the same approximate value as the 
single sum.
    (C) Special rules. If the plan is comparing the value of each 
optional form to the value of the QJSA for a married participant, this 
paragraph (c)(2)(iii)(C) provides a grouping rule that is in addition 
to the grouping rules of paragraph (c)(2)(iii)(A) of this section. 
Under this special rule, the relative value of all optional forms of 
benefit that have an actuarial present value that is at least 95 
percent of the actuarial present value of the QJSA for a married 
participant is permitted to be described by stating that those optional 
forms of benefit are approximately equal in value to the QJSA, or that 
all of those forms of benefit and the QJSA are approximately equal in 
value. In addition, if a plan is comparing the value of optional forms 
of benefit to the value of the single life annuity and all optional 
forms of benefit have actuarial present values that are at least 95 
percent, but not greater than 102.5 percent, of the actuarial present 
value of the single life annuity, the plan is permitted to describe the 
relative value of all optional forms of benefit by stating that all the 
optional forms of benefit are approximately equal in value, or that all 
of those forms of benefit and the single life annuity are approximately 
equal in value.
    (iv) Actuarial assumptions used to determine relative values. For 
the purpose of providing a numerical comparison of the value of an 
optional form of benefit to the value of the immediately commencing 
QJSA under this paragraph (c)(2), the following rules apply--
    (A) If an optional form of benefit is subject to the requirements 
of section 417(e)(3) and Sec.  1.417(e)-1(d), any comparison of the 
value of the optional form of benefit to the value of the QJSA must be 
made using the applicable mortality table and the applicable interest 
rate as defined in Sec.  1.417(e)-1(d)(2) and (3) (or, at the option of 
the plan, another reasonable interest rate and reasonable mortality 
table used under the plan to calculate the amount payable under the 
optional form of benefit); and
    (B) All other optional forms of benefit payable to the participant 
must be compared with the QJSA using a single set of interest and 
mortality assumptions that are reasonable and that are applied 
uniformly with respect to all such optional forms payable to the 
participant (regardless of whether those assumptions are actually used 
under the plan for purposes of determining benefit payments).
    (v) Required disclosure of assumptions--(A) Explanation of concept 
of relative value. The notice must provide an explanation of the 
concept of relative value, communicating that the relative value 
comparison is intended to allow the participant to compare the total 
value of distributions paid in different forms, that the relative value 
comparison is made by converting the value of the optional forms of 
benefit presently available to a common form (such as the QJSA or a 
single-sum distribution), and that this conversion uses interest and 
life expectancy assumptions. The explanation of relative value must 
include a general statement that all comparisons provided are based on 
average life expectancies, and that the relative value of payments 
ultimately made under an annuity optional form of benefit will depend 
on actual longevity.
    (B) Disclosure of assumptions. A required numerical comparison of 
the value of the optional form of benefit to the value of the QJSA 
under this paragraph (c)(2) is required to include a disclosure of the 
interest rate that is used to develop the comparison. If all optional 
forms of benefit are permitted to be grouped under paragraph 
(c)(2)(iii)(A) of this section, then the requirement of this paragraph 
(c)(2)(v)(B) does not apply for any optional form of benefit not 
subject to the requirements of section 417(e)(3) and Sec.  1.417(e)-
1(d)(3).
    (C) Offer to provide actuarial assumptions. If the plan does not 
disclose the actuarial assumptions used to calculate the numerical 
comparison required under paragraph (c)(2) of this section, then, the 
notice must be accompanied by a statement that includes an offer to 
provide, upon the participant's request, the actuarial assumptions used 
to calculate the relative value of optional forms of benefit under the 
plan.

[[Page 70146]]

    (3) Permitted estimates of financial effect and relative value--(i) 
General rule. For purposes of providing a description of the financial 
effect of the distribution forms available to a participant as required 
under paragraph (c)(1)(iii) of this section, and for purposes of 
providing a description of the relative value of an optional form of 
benefit compared to the value of the QJSA for a participant as required 
under paragraph (c)(1)(iv) of this section, the plan is permitted to 
provide reasonable estimates (e.g., estimates based on data as of an 
earlier date than the annuity starting date, a reasonable assumption 
for the age of the participant's spouse, or, in the case of a defined 
contribution plan, reasonable estimates of amounts that would be 
payable under a purchased annuity contract), including reasonable 
estimates of the applicable interest rate under section 417(e)(3).
    (ii) Right to more precise calculation. If a QJSA notice uses a 
reasonable estimate under paragraph (c)(3)(i) of this section, the QJSA 
explanation must identify the estimate and explain that the plan will, 
upon the request of the participant, provide a more precise calculation 
and the plan must provide the participant with a more precise 
calculation if so requested. Thus, for example, if a plan provides an 
estimate of the amount of the QJSA that is based on a reasonable 
assumption concerning the age of the participant's spouse, the 
participant can request a calculation that takes into account the 
actual age of the spouse, as provided by the participant.
    (iii) Revision of prior information. If a more precise calculation 
described in paragraph (c)(3)(ii) of this section materially changes 
the relative value of an optional form compared to the value of the 
QJSA, the revised relative value of that optional form must be 
disclosed, regardless of whether the financial effect of selecting the 
optional form is affected by the more precise calculation. For example, 
if a participant provides a plan with the age of the participant's 
spouse and that information materially changes the relative value of an 
optional form of benefit (such as a single sum) compared to the value 
of the QJSA, then the revised relative value of the optional form of 
benefit and the value of the QJSA must be disclosed, regardless of 
whether the amount of the payment under that optional form of benefit 
is affected by the more precise calculation.
    (4) Special rules for disclosure of financial effect for defined 
contribution plans. For a written explanation provided by a defined 
contribution plan, a description of financial effect required by 
paragraph (c)(1)(iii) of this section with respect to an annuity form 
of benefit must include a statement that the annuity will be provided 
by purchasing an annuity contract from an insurance company with the 
participant's account balance under the plan. If the description of the 
financial effect of the optional form of benefit is provided using 
estimates rather than by assuring that an insurer is able to provide 
the amount disclosed to the participant, the written explanation must 
also disclose this fact.
    (d) Substitution of generally applicable information for 
participant information in the section 417(a)(3) explanation--(1) Forms 
of benefit available. In lieu of providing the information required 
under paragraphs (c)(1)(i) through (v) of this section for each 
optional form of benefit presently available to the participant as 
described in paragraph (c) of this section, the QJSA explanation may 
contain the information required under paragraphs (c)(1)(i) through (v) 
of this section for the QJSA and each other optional form of benefit 
generally available under the plan, along with a reference to where a 
participant may readily obtain the information required under 
paragraphs (c)(1)(i) through (v) of this section for any other optional 
forms of benefit that are presently available to the participant.
    (2) Financial effect and comparison of relative values--(i) General 
rule. In lieu of providing a statement of the financial effect of 
electing an optional form of benefit as required under paragraph 
(c)(1)(iii) of this section, or a comparison of relative values as 
required under paragraph (c)(1)(iv) of this section, based on the 
actual age and benefit of the participant, the QJSA explanation is 
permitted to include a chart (or other comparable device) showing the 
financial effect and relative value of optional forms of benefit in a 
series of examples specifying the amount of the optional form of 
benefit payable to a hypothetical participant at a representative range 
of ages and the comparison of relative values at those same 
representative ages. Each example in this chart must show the financial 
effect of electing the optional form of benefit pursuant to the rules 
of paragraph (c)(1)(iii) of this section, and a comparison of the 
relative value of the optional form of benefit to the value of the QJSA 
pursuant to the rules of paragraph (c)(2) of this section, using 
reasonable assumptions for the age of the hypothetical participant's 
spouse and any other variables that affect the financial effect, or 
relative value, of the optional form of benefit. The requirement to 
show the financial effect of electing an optional form can be satisfied 
through the use of other methods (e.g., expressing the amount of the 
optional form as a percentage or a factor of the amount payable under 
the normal form of benefit), provided that the method provides 
sufficient information so that a participant can determine the amount 
of benefits payable in the optional form. The chart (or other 
comparable device) must be accompanied by the disclosures described in 
paragraph (c)(2)(v) of this section explaining the concept of relative 
value and disclosing certain interest assumptions. In addition, the 
chart (or other comparable device) must be accompanied by a general 
statement describing the effect of significant variations between the 
assumed ages or other variables on the financial effect of electing the 
optional form of benefit and the comparison of the relative value of 
the optional form of benefit to the value of the QJSA.
    (ii) Actual benefit must be disclosed. The generalized notice 
described in this paragraph (d)(2) will satisfy the requirements of 
paragraph (b)(2) of this section only if the notice includes either the 
amount payable to the participant under the normal form of benefit or 
the amount payable to the participant under the normal form of benefit 
adjusted for immediate commencement. For this purpose, the normal form 
of benefit is the form under which payments due to the participant 
under the plan are expressed under the plan, prior to adjustments for 
form of benefit. For example, assuming that a plan's benefit accrual 
formula is expressed as a straight life annuity, the generalized notice 
must provide the amount of either the straight life annuity commencing 
at normal retirement age or the straight life annuity commencing 
immediately.
    (iii) Ability to request additional information. The generalized 
notice described in this paragraph (d)(2) must be accompanied by a 
statement that includes an offer to provide, upon the participant's 
request, a statement of financial effect and a comparison of relative 
values that is specific to the participant for any presently available 
optional form of benefit, and a description of how a participant may 
obtain this additional information.
    (3) Financial effect of QPSA election. In lieu of providing a 
specific description of the financial effect of the QPSA election, the 
QPSA explanation may provide a general description of the financial 
effect of the election. Thus, for example, the description can be in 
the form of a chart showing the reduction to a hypothetical 
participant's normal

[[Page 70147]]

retirement benefit at a representative range of participant ages as a 
result of the QPSA election (using a reasonable assumption for the age 
of the hypothetical participant's spouse relative to the age of the 
hypothetical participant). In addition, this chart must be accompanied 
by a statement that includes an offer to provide, upon the 
participant's request, an estimate of the reduction to the 
participant's estimated normal retirement benefit, and a description of 
how a participant may obtain this additional information.
    (4) Additional information required to be furnished at the 
participant's request-- The generalized notice described in paragraph 
(d)(2) of this section must be accompanied by a statement that includes 
an offer to provide, upon the participant's request, information 
described in this paragraph (d)(4)(i) and (ii), and a description of 
how a participant may obtain this additional information.
    (i) Explanation of QJSA. If, as permitted under paragraphs (d)(1) 
and (2) of this section, the content of a QJSA explanation does not 
include all the items described in paragraph (c) of this section, then, 
upon a participant's request for any of the information required under 
paragraphs (c)(1)(i) through (v) of this section for one or more 
presently available optional forms (including a request for all 
optional forms presently available to the participant), the plan must 
furnish the information required under paragraphs (c)(1)(i) through (v) 
of this section with respect to those optional forms. Thus, with 
respect to those optional forms of benefit, the participant must 
receive a QJSA explanation specific to the participant that is based on 
the participant's actual age and benefit. In addition, the plan must 
comply with paragraph (c)(3)(iii) of this section. Further, if as 
permitted under paragraph (c)(2)(v)(B) of this section, the plan does 
not disclose the actuarial assumptions used to calculate the numerical 
comparison required under paragraph (c)(2) of this section, then, upon 
request, the plan must provide the actuarial assumptions used to 
calculate the relative value of optional forms of benefit under the 
plan.
    (ii) Explanation of QPSA. If, as permitted under paragraph (d)(3) 
of this section, the content of a QPSA explanation does not include all 
the items described in paragraph (b)(1) of this section, then, upon a 
participant's request, the plan must furnish an estimate of the 
reduction to the participant's estimated normal retirement benefit that 
would result from a QPSA election.
    (e) Examples. The following examples illustrate the application of 
this section. Solely for purposes of these examples, the applicable 
interest rate that applies to any distribution that is subject to the 
rules of section 417(e)(3) is assumed to be 52\1/2\ percent, and the 
applicable mortality table under section 417(e)(3) and Sec.  1.417(e)-
1(d)(2) is assumed to be the table that applies as of January 1, 2003. 
In addition, solely for purposes of these examples, assume that a plan 
which determines actuarial equivalence using 6 percent interest and the 
applicable mortality table under section 417(e)(3) and Sec.  1.417(e)-
1(d)(2) that applies as of January 1, 1995, is using reasonable 
actuarial assumptions. The examples are as follows:

    Example 1. (i) Participant M participates in Plan A, a qualified 
defined benefit plan. Under Plan A, the QJSA is a joint and 100 
percent survivor annuity, which is actuarially equivalent to the 
single life annuity determined using 6 percent interest and the 
section 417(e)(3) applicable mortality table that applies as of 
January 1, 1995. On October 1, 2004, M will terminate employment at 
age 55. When M terminates employment, M will be eligible to elect an 
unreduced early retirement benefit, payable as either a single life 
annuity or the QJSA. M will also be eligible to elect a single-sum 
distribution equal to the actuarial present value of the single life 
annuity payable at normal retirement age (age 65), determined using 
the applicable mortality table and the applicable interest rate 
under section 417(e)(3).
    (ii) Consistent with paragraph (c) of this section, Participant 
M is provided with a QJSA explanation that describes the single life 
annuity, the QJSA, and single-sum distribution options under the 
plan, and any eligibility conditions associated with these options. 
Participant M is married when the explanation is provided. The 
explanation indicates that, if Participant M commenced benefits at 
age 55 and had a spouse age 55, the monthly benefit under an 
immediately commencing single life annuity is $3,000, the monthly 
benefit under the QJSA is estimated to be 89.96 percent of the 
monthly benefit under the immediately commencing single life annuity 
or $2,699, and the single sum is estimated to be 74.7645 times the 
monthly benefit under the immediately commencing single life annuity 
or $224,293.
    (iii) The QJSA explanation indicates that the single life 
annuity and the QJSA are of approximately the same value, but that 
the single-sum option is equivalent in value to a monthly benefit 
under the QJSA of $1,215. (This amount is 45 percent of the value of 
the QJSA at age 55 ($1,215 divided by 89.96 percent of $3,000 equals 
45 percent).) The explanation states that the relative value 
comparison converts the value of the single life annuity and the 
single-sum options to the value of each if paid in the form of the 
QJSA and that this conversion uses interest and life expectancy 
assumptions. The explanation specifies that the calculations 
relating to the single-sum distribution were prepared using 5.5 
percent interest and average life expectancy, that the other 
calculations were prepared using a 6 percent interest rate and that 
the relative value of actual annuity payments for an individual can 
vary depending on how long the individual and spouse live. The 
explanation notes that the calculation of the QJSA assumed that the 
spouse was age 55, that the amount of the QJSA will depend on the 
actual age of the spouse (for example, annuity payments will be 
significantly lower if the spouse is significantly younger than the 
participant), and that the amount of the single-sum payment will 
depend on the interest rates that apply when the participant 
actually takes a distribution. The explanation also includes an 
offer to provide a more precise calculation to the participant 
taking into account the spouse's actual age.
    (iv) In accordance with paragraph (c)(3)(ii) of this section, 
Participant M requests a more precise calculation of the financial 
effect of choosing a QJSA taking into account that Participant M's 
spouse is 50 years of age. Using the actual age of Participant M's 
spouse, Plan A determines that the monthly payments under the QJSA 
are 87.62 percent of the monthly payments under the single life 
annuity, or $2,628.60 per month, and provides this information to M. 
Plan A is not required to provide an updated calculation of the 
relative value of the single sum because the value of single sum 
continues to be 45 percent of the value of the QJSA.
    Example 2. (i) The facts are the same as in Example 1, except 
that the comparison of the relative values of optional forms of 
benefit to the value of the QJSA is not expressed as a percentage of 
the actuarial present value of the QJSA, but instead is expressed by 
disclosing the actuarial present values of the optional forms and 
the QJSA. In addition, the Plan uses the applicable interest rate 
and the applicable mortality table under section 417(e)(3) for all 
comparison purposes.
    (ii) Accordingly, the QJSA explanation indicates that the QJSA 
has an actuarial present value of $498,089, while the single-sum 
payment has an actuarial present value of $224,293 (i.e. the amount 
of the single sum is $224,293) and that the single life annuity is 
approximately equal in value to the QJSA. The explanation states 
that the relative value comparison converts the value of single life 
annuity and the QJSA into an amount payable in the form of the 
single-sum option (even though a single-sum distribution in that 
amount is not available under the plan) and that this conversion 
uses interest and life expectancy assumptions. The explanation 
specifies that the calculations were prepared using 5.5 percent 
interest and average life expectancy, and that the relative value of 
actual annuity payments for an individual can vary depending on how 
long the individual and spouse live. The explanation notes that the 
calculation of the QJSA assumed that the spouse was age 55, that the 
amount of the QJSA will depend on the actual age of the spouse (for 
example, annuity payments will be significantly lower if the spouse 
is significantly younger than the participant), and that the amount 
of the single-sum payment will depend on the interest rates that 
apply when the participant

[[Page 70148]]

actually takes a distribution. The explanation also includes an 
offer to provide a more precise calculation to the participant 
taking into account the spouse's actual age.
    Example 3. (i) The facts are the same as in Example 1, except 
that, in lieu of providing information specific to Participant M in 
the QJSA notice as set forth in paragraph (c) of this section, Plan 
A satisfies the QJSA explanation requirement in accordance with 
paragraph (d)(2) of this section by providing M with a statement 
that M's monthly benefit under an immediately commencing single life 
annuity (which is the normal form of benefit under Plan A, adjusted 
for immediate commencement) is $3,000, along with the following 
chart. The chart shows the financial effect of electing each 
optional form of benefit for a hypothetical participant with a 
$1,000 benefit and a spouse who is the same age as the participant. 
Instead of showing the relative value of these optional forms of 
benefit compared to the value of the QJSA, the chart shows the 
relative value of these optional forms of benefit compared to the 
value of the single life annuity. Separate charts are provided for 
ages 55, 60, and 65 as follows:

                           Age 55 Commencement
------------------------------------------------------------------------
                                       Amount of
                                   distribution per
          Optional form                $1,000 of        Relative value
                                   immediate single
                                     life annuity
------------------------------------------------------------------------
Life Annuity....................  $1,000 per month..  n/a.
QJSA (Joint and 100 percent       $900 per month      Approximately the
 survivor annuity).                ($900 per month     same value as the
                                   for survivor        Life Annuity.
                                   annuity).
Lump sum........................  $74,764...........  Approximately 45
                                                       percent of the
                                                       value of the Life
                                                       Annuity.
------------------------------------------------------------------------


                           Age 60 Commencement
------------------------------------------------------------------------
                                       Amount of
                                   distribution per
          Optional form                $1,000 of        Relative value
                                   immediate single
                                     life annuity
------------------------------------------------------------------------
Life Annuity....................  $1,000 per month..  n/a.
QJSA (Joint and 100 percent       $878 per month      Approximately the
 survivor annuity).                ($878 per month     same value as the
                                   for survivor        Life Annuity.
                                   annuity).
Lump sum........................  $99,792...........  Approximately 66
                                                       percent of the
                                                       value of the Life
                                                       Annuity.
------------------------------------------------------------------------


                           Age 65 Commencement
------------------------------------------------------------------------
                                       Amount of
                                   distribution per
          Optional form                $1,000 of        Relative value
                                   immediate single
                                     life annuity
------------------------------------------------------------------------
Life Annuity....................  $1,000 per month..  n/a.
QJSA (Joint and 100 percent       $852 per month      Approximately the
 survivor annuity).                ($852 per month     same value as the
                                   for survivor        Life Annuity.
                                   annuity).
Lump sum........................  $135,759..........  Approximately the
                                                       same value as the
                                                       Life Annuity.
------------------------------------------------------------------------

    (ii) In accordance with paragraph (d)(4)(i) of this section, 
when Participant M requests specific information regarding the 
amounts payable under the QJSA, the joint and 100 percent survivor 
annuity, and the single-sum distribution and provides the age of M's 
spouse, Plan A determines that M's QJSA is $2,628.60 per month and 
the single-sum distribution is $224,293. The actuarial present value 
of the QJSA (determined using the 5.5 percent interest and the 
section 417(e)(3) applicable mortality table) is $498,896 and the 
actuarial present value of the single life annuity is $497,876. 
Accordingly, the specific information discloses that the single-sum 
distribution has a value that is 45 percent of the value of the 
single life annuity available to M on October 1, 2004. In accordance 
with paragraph (c)(2)(iii)(C) of this section, the QJSA notice 
provides that the QJSA is of approximately the same value as the 
single life annuity.
    Example 4. (i) The facts are the same as in Example 1, except 
that under Plan A, the single-sum distribution is determined as the 
actuarial present value of the immediately commencing single life 
annuity. In addition, Plan A provides a joint and 75 percent 
survivor annuity that is reduced from the single life annuity and 
that is the QJSA under Plan A. For purposes of determining the 
amount of the QJSA, if the participant is married the reduction is 
only half of the reduction that would normally apply under the 
actuarial assumptions specified in Plan A for determining actuarial 
equivalence of optional forms.
    (ii) In lieu of providing information specific to Participant M 
in the QJSA notice as set forth in paragraph (c) of this section, 
Plan A satisfies the QJSA explanation requirement in accordance with 
paragraph (d)(2) of this section by providing M with a statement 
that M's monthly benefit under an immediately commencing single life 
annuity (which is the normal form of benefit under Plan A, adjusted 
for immediate commencement) is $3,000, along with the following 
chart showing the financial effect and the relative value of the 
optional forms of benefit compared to the QJSA for a hypothetical 
participant with a $1,000 benefit and a spouse who is three years 
younger than the participant. For each optional form generally 
available under the plan, the chart shows the financial effect and 
the relative value, using the grouping rules of paragraph (c)(2)(ii) 
of this section. Separate charts are provided for ages 55, 60, and 
65, as follows:

                           Age 55 Commencement
------------------------------------------------------------------------
                                       Amount of
                                   distribution per
          Optional form                $1,000 of        Relative value
                                   immediate single
                                     life annuity
------------------------------------------------------------------------
Life Annuity....................  $1,000 per month..  Approximately the
                                                       same value as the
                                                       QJSA.

[[Page 70149]]

 
QJSA (joint and 75 percent        $956 per month      n/a.
 survivor annuity for a            ($717 per month
 participant who is married).      for survivor
                                   annuity).
Joint and 100 percent survivor    $886 per month      Approximately the
 annuity.                          ($886 per month     same value as the
                                   for survivor        QJSA.
                                   annuity).
Lump sum........................  $165,959..........  Approximately the
                                                       same value as the
                                                       QJSA.
------------------------------------------------------------------------


                           Age 60 Commencement
------------------------------------------------------------------------
                                       Amount of
                                   distribution per
          Optional form                $1,000 of        Relative value
                                   immediate single
                                     life annuity
------------------------------------------------------------------------
Life Annuity....................  $1,000 per month..  Approximately 94
                                                       percent of the
                                                       value of the
                                                       QJSA.
QJSA (joint and 75 percent        $945 per month      n/a.
 survivor annuity for a            ($709 per month
 participant who is married).      for survivor
                                   annuity).
Joint and 100 percent survivor    $859 per month      Approximately 94
 annuity.                          ($859 per month     percent of the
                                   for survivor        value of the
                                   annuity).           QJSA.
Lump sum........................  $151,691..........  Approximately the
                                                       same value as the
                                                       QJSA.
------------------------------------------------------------------------


                           Age 65 Commencement
------------------------------------------------------------------------
                                       Amount of
                                   distribution per
          Optional form                $1,000 of        Relative value
                                   immediate single
                                     life annuity
------------------------------------------------------------------------
Life Annuity....................  $1,000 per month..  Approximately 93
                                                       percent of the
                                                       value of the
                                                       QJSA.
QJSA (joint and 75 percent        $932 per month      n/a.
 survivor annuity for a            ($699 per month
 participant who is married).      for survivor
                                   annuity).
Joint and 100 percent survivor    $828 per month      Approximately 93
 annuity.                          ($828 per month     percent of the
                                   for survivor        value of the
                                   annuity).           QJSA.
Lump sum........................  $135,759..........  Approximately 93
                                                       percent of the
                                                       value of the
                                                       QJSA.
------------------------------------------------------------------------

    (iii) The chart disclosing the financial effect and relative 
value of the optional forms specifies that the calculations were 
prepared assuming that the spouse is three years younger than the 
participant, that the calculations relating to the single-sum 
distribution were prepared using 5.5 percent interest and average 
life expectancy, that the other calculations were prepared using a 6 
percent interest rate, and that the relative value of actual 
payments for an individual can vary depending on how long the 
individual and spouse live. The explanation states that the relative 
value comparison converts the single life annuity, the joint and 100 
percent survivor annuity, and the single-sum options to value of 
each if paid in the form of the QJSA and that this conversion uses 
interest and life expectancy assumptions. The explanation notes that 
the calculation of the QJSA depends on the actual age of the spouse 
(for example, annuity payments will be significantly lower if the 
spouse is significantly younger than the participant), and that the 
amount of the single-sum payment will depend on the interest rates 
that apply when the participant actually takes a distribution. The 
explanation also includes an offer to provide a calculation specific 
to the participant upon request, and an offer to provide mortality 
tables used in preparing calculations upon request.
    (iv) In accordance with paragraph (d)(4)(i) of this section, 
Participant M requests specific information regarding the amounts 
payable under the QJSA, the joint and 100 percent survivor annuity, 
and the single sum.
    (v) Based on the information about the age of Participant M's 
spouse, Plan A determines that M's QJSA is $2,856.30 per month, the 
joint and 100 percent survivor annuity is $2,628.60 per month, and 
the single sum is $497,876. The actuarial present value of the QJSA 
(determined using the 5.5 percent interest and the section 417(e)(3) 
applicable mortality table, the actuarial assumptions required under 
section 417) is $525,091. Accordingly, the value of the single-sum 
distribution available to M on October 1, 2004, is 94.8 percent of 
the actuarial present value of the QJSA. In addition, the actuarial 
present value of the life annuity and the 100 percent joint and 
survivor annuity are 95.0 percent of the actuarial present value of 
the QJSA.
    (vi) Plan A provides M with a QJSA explanation that incorporates 
these more precise calculations of the financial effect and relative 
value of the optional forms for which M requested information.

    (f) Effective date. This section applies to QJSA explanations with 
respect to distributions with annuity starting dates on or after 
October 1, 2004, and to QPSA explanations provided on or after July 1, 
2004. In the case of a retroactive annuity starting date under section 
417(a)(7), when required under Sec.  1.417(e)-1(b)(3)(vi), the date of 
commencement of the actual payments based on the retroactive annuity 
starting date is substituted for the annuity starting date for this 
purpose.


Sec.  1.417(e)-1  [Amended]

0
Par. 5. In Sec.  1.417(e)-1, paragraph (b)(2) is amended by removing 
the language ``Sec.  1.401(a)-20 Q&A-36'' and adding ``Sec.  
1.417(a)(3)-1'' in its place.

PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT

0
Par. 6. The authority citation for part 602 continues to read as 
follows:

    Authority: 26 U.S.C. 7808.

0
Par. 7. In Sec.  602.101, paragraph (b) is amended by adding an entry 
for ``Sec.  1.417(a)(3)-1'' in numerical order to the table to read in 
part as follows:


Sec.  602.101  OMB Control numbers.

* * * * *
    (b) * * *

------------------------------------------------------------------------
                                                             Current OMB
    CFR part or section where identified and described       control No.
------------------------------------------------------------------------
 

[[Page 70150]]

 
                                * * * * *
1.417(a)(3)-1.............................................     1545-0928
 
                                * * * * *
------------------------------------------------------------------------


Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: December 3, 2003.
Gregory Jenner,
Deputy Assistant Secretary (Tax Policy).
[FR Doc. 03-31033 Filed 12-16-03; 8:45 am]
BILLING CODE 4830-01-P