[Federal Register Volume 73, Number 133 (Thursday, July 10, 2008)]
[Proposed Rules]
[Pages 39630-39632]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-15740]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-142040-07]
RIN 1545-BH53


Reasonable Good Faith Interpretation of Required Minimum 
Distribution Rules by Governmental Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains proposed regulations under sections 
401(a)(9) and 403(b) of the Internal Revenue Code (Code) to permit a 
governmental plan to comply with the required minimum distribution 
rules by using a reasonable and good faith interpretation of the 
statute. These proposed regulations will affect administrators of, 
employers maintaining, participants in, and beneficiaries of 
governmental plans.

DATES: Written or electronic comments and requests for a public hearing 
must be received by October 8, 2008.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-142040-07), room 
5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, 
Washington DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (REG-
142040-07),

[[Page 39631]]

Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue, 
NW., Washington, DC, or sent electronically via the Federal eRulemaking 
Portal at http://www.regulations.gov (IRS REG-142040-07).

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Cathy V. 
Pastor or Michael P. Brewer at (202) 622-6090 (not a toll-free number); 
concerning submission of comments or to request a public hearing, 
[email protected].

SUPPLEMENTARY INFORMATION: 

Background

    This document contains proposed amendments to regulations under 
sections 401(a)(9) and 403(b) of the Code. Section 401(a)(9) provides 
required minimum distribution rules for a qualified trust under section 
401(a). In general, under these rules, distribution of each 
participant's entire interest must begin by April 1 of the calendar 
year following the later of (1) the calendar year in which the 
participant attains age 70\1/2\ or (2) the calendar year in which the 
participant retires (``the required beginning date''). If the entire 
interest of the participant is not distributed by the required 
beginning date, then section 401(a)(9)(A) provides that the entire 
interest of the participant must be distributed beginning not later 
than the required beginning date, in accordance with regulations, over 
the life of the participant or lives of the participant and a 
designated beneficiary (or over a period not extending beyond the life 
expectancy of the participant or the life expectancy of the participant 
and a designated beneficiary). Section 401(a)(9)(B) provides the 
required minimum distribution rules after the death of the participant.
    IRAs described in section 408, section 403(b) plans, and eligible 
deferred compensation plans under section 457(b), also are subject to 
the required minimum distribution rules of section 401(a)(9) pursuant 
to sections 408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2), 
respectively, and the regulations under those sections.
    In 2002, the IRS and the Treasury Department published final 
regulations under sections 401(a)(9), 403(b), and 408 in the Federal 
Register (67 FR 18987). Section 1.401(a)(9)-1, A-2(a), provides that 
the final regulations apply for purposes of determining required 
minimum distributions for calendar years beginning on or after January 
1, 2003. The rules for defined benefit plans and annuities were 
included in a temporary regulation, Sec.  1.401(a)(9)-6T, as well as in 
a proposed regulation (67 FR 18834) in order to allow taxpayers to 
comment on the rules.
    In 2004, the IRS and the Treasury Department replaced the temporary 
regulations with final regulations under Sec.  1.401(a)(9)-6 (69 FR 
33288). The final regulations contain a ``grandfather rule'' in Q&A-16, 
which provides that annuity distribution options provided under the 
terms of a governmental plan (within the meaning section 414(d)) as in 
effect on April 17, 2002, are treated as satisfying the requirements of 
section 401(a)(9) if they satisfy a reasonable and good faith 
interpretation of the provisions of section 401(a)(9). In addition, 
Q&A-17 provides that, for distributions from any defined benefit plan 
or annuity contract during 2003, 2004, and 2005, the payments could 
satisfy a reasonable and good faith interpretation of section 401(a)(9) 
in lieu of Sec.  1.401(a)(9)-6. For governmental plans, Sec.  
1.401(a)(9)-6, Q&A-17, extended this reasonable good faith standard to 
the end of the calendar year that contains the 90th day after the 
opening of the first legislative session of the legislative body with 
the authority to amend the plan that begins on or after June 15, 2004, 
if such 90th day is later than December 31, 2005.
    In 2003, the IRS and the Treasury Department published final 
regulations under section 457(b) in the Federal Register (68 FR 41230). 
These regulations included Sec.  1.457-6(d), which provides that a 
section 457(b) eligible plan must meet the requirements of section 
401(a)(9) and the regulations under that section.
    In 2007, the IRS and the Treasury Department published final 
regulations under section 403(b) in the Federal Register (72 FR 41128). 
These regulations, which become effective for tax years beginning after 
December 31, 2008, included Sec.  1.403(b)-6(e)(1), which provides that 
a section 403(b) contract must meet the requirements of section 
401(a)(9). Section 1.403(b)-6(e)(2) provides, with certain exceptions, 
that section 403(b) contracts apply the section 401(a)(9) required 
minimum distribution rules in accordance with Sec.  1.408-8.
    Section 1.408-8, Q&A-1, provides, with certain exceptions, that in 
order to satisfy section 401(a)(9) for purposes of determining required 
minimum distributions, the rules of Sec. Sec.  1.401(a)(9)-1 through 
1.401(a)(9)-9 must be applied.
    Section 823 of the Pension Protection Act of 2006, Public Law 109-
280 (120 Stat. 780), instructs the Secretary of the Treasury to issue 
regulations under which, for all years to which section 401(a)(9) 
applies, a governmental plan, within the meaning of section 414(d), 
shall be treated as having complied with section 401(a)(9) if such plan 
complies with a reasonable good faith interpretation of section 
401(a)(9).

Explanation of Provisions

    The proposed regulations would amend the regulations under section 
401(a)(9) to treat a governmental plan, within the meaning of section 
414(d), as having complied with the rules of section 401(a)(9) if the 
governmental plan applies a reasonable and good faith interpretation of 
section 401(a)(9). The same rule would apply to an eligible 457(b) plan 
maintained by a government. In addition, this rule would apply to a 
section 403(b) contract that is part of a governmental plan, and the 
regulations under section 403(b) would be amended accordingly. The 
proposed regulations would also make conforming amendments to the 
regulations under section 401(a)(9) that eliminate other special rules 
for governmental plans which would be rendered superfluous with this 
change.

Proposed Effective/Applicability Date

    These regulations are proposed to be applied to all years for which 
section 401(a)(9) applies.

Special Analyses

    It has been determined that this notice of proposed rulemaking 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 
Sec. Sec.  1.401(a)(9)-1 and 1.403(b)-6 would 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.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (one signed and eight (8) 
copies) or electronic comments that are submitted timely to the IRS. 
All comments will be available for public inspection and copying. A 
public hearing will be scheduled if a request to speak is submitted in 
writing by any person who timely submits written comments. If a public 
hearing is

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scheduled, notice of the date, time, and place of the public hearing 
will be published in the Federal Register.

Drafting Information

    The principal authors of these regulations are Michael P. Brewer 
and Cathy V. Pastor, Office of Division Counsel/Associate Chief Counsel 
(Tax Exempt and Government Entities). However, other personnel from the 
IRS and the Treasury Department participated in the development of 
these regulations.

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 continues to read in 
part as follows:

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

    Par. 2. Section 1.401(a)(9)-1 is amended by adding a new paragraph 
(d) to A-2 as follows:


Sec.  1.401(a)(9)-1  Minimum distribution requirement in general.

* * * * *
    A-2. * * * (d) Special rule for governmental plans. Notwithstanding 
anything to the contrary in this A-2, a governmental plan (within the 
meaning of section 414(d)), or an eligible governmental plan described 
in Sec.  1.457-2(f), is treated as having complied with section 
401(a)(9) for all years to which section 401(a)(9) applies to the plan 
if the plan complies with a reasonable and good faith interpretation of 
section 401(a)(9).
* * * * *


Sec.  1.401(a)(9)-6  [Amended]

    Par. 3. Section 1.401(a)(9)-6 is amended by:
    1. Removing Q&A-16.
    2. Redesignating Q&A-17 as Q&A-16.
    3. Removing the word ``A-16'' and adding ``A-15'' in the newly-
designated A-16.
    4. Removing the last sentence of the newly-designated A-16.
    Par. 4. Section 1.403(b)-6 is amended by:
    1. Revising the last sentence of paragraph (e)(2).
    2. Adding a new paragraph (e)(8).
    The revisions and addition are as follows:


Sec.  1.403(b)-6  Timing of distributions and benefits.

* * * * *
    (e) Minimum required distributions for eligible plans.
* * * * *
    (2) * * * Consequently, except as otherwise provided in this 
paragraph (e), the distribution rules in section 401(a)(9) are applied 
to section 403(b) contracts in accordance with the provisions in Sec.  
1.408-8 for purposes of determining required minimum distributions.
* * * * *
    (8) Special rule for governmental plans. A section 403(b) contract 
that is part of a governmental plan (within the meaning of section 
414(d)) is treated as having complied with section 401(a)(9) for all 
years to which section 401(a)(9) applies to the contract, if the 
contract complies with a reasonable and good faith interpretation of 
section 401(a)(9).
* * * * *

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
[FR Doc. E8-15740 Filed 7-9-08; 8:45 am]
BILLING CODE 4830-01-P