[Federal Register Volume 60, Number 184 (Friday, September 22, 1995)]
[Rules and Regulations]
[Pages 49218-49222]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-23263]
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DEPARTMENT OF THE TREASURY
26 CFR Parts 1 and 602
[TD 8620]
RIN 1545-AT75
Notice, Consent, and Election Requirements of Sections 411(a)(11)
and 417
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final and temporary regulations.
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[[Page 49219]]
SUMMARY: This document contains regulations that provide guidance
concerning the notice and consent requirements under section 411(a)(11)
and the notice and election requirements under section 417. The text of
the temporary regulations also serves as the text of the proposed
regulations set forth in the notice of proposed rulemaking on this
subject in the Proposed Rules section of this issue of the Federal
Register.
EFFECTIVE DATE: These regulations are effective September 22, 1995.
FOR FURTHER INFORMATION CONTACT: Thomas Foley, (202) 622-6050 (not a
toll-free number).
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
These regulations are being issued without prior notice and public
procedure pursuant to the Administrative Procedure Act (5 U.S.C. 553).
For this reason, the collection of information contained in these
regulations has been reviewed and, pending receipt and evaluation of
public comments, approved by the Office of Management and Budget under
control number 1545-1471. Responses to this collection of information
are required to assure that the rights of qualified plan participants
are protected.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number.
For further information concerning this collection of information,
and where to submit comments on the collection of information and the
accuracy of the estimated burden and suggestions for reducing this
burden, please refer to the preamble to the cross-referencing notice of
proposed rulemaking published in the Proposed Rules section of this
issue of the Federal Register.
Books or records relating to a collection of information must be
retained as long as their contents may become material in the
administration of any internal revenue law. Generally, tax returns and
tax return information are confidential, as required by 26 U.S.C. 6103.
Background
This document contains amendments to the Income Tax Regulations (26
CFR part 1) under section 411(a)(11) and section 417(e). Section
1.411(a)-11(c) provides that a participant's consent to a distribution
under section 411(a)(11) is not valid unless the participant receives a
notice of his or her rights under the plan no more than 90 and no less
than 30 days prior to the annuity starting date. Section 1.417(e)-1
sets forth the same 90/30-day time period for providing the notice
explaining the qualified joint and survivor annuity and waiver rights
required under section 417(a)(3).
The October 1992 temporary regulations that provided guidance on
the amendment to section 402(f) made by the Unemployment Compensation
Amendments of 1992 (UCA), published in the Federal Register at 57 FR
48163, generally prescribed this 90/30-day time period for purposes of
the notice requirement under that section. In the preamble to those
regulations, the IRS and Treasury requested comments on the
appropriateness of this time period for section 411(a)(11), as well as
for section 402(f).
In response to initial comments on the UCA proposed and temporary
regulations, additional guidance was provided in Notice 93-26 (1993-1
C.B. 293), which modified the 30-day time period for purposes of
sections 402(f) and 411(a)(11). These temporary regulations modify the
30-day time period in Sec. 1.411(a)-11 in a manner consistent with
Notice 93-26 and also provide a more limited modification to the 30-day
time period in Sec. 1.417(e)-1. These temporary regulations are being
published in conjunction with the final regulations implementing the
UCA changes, published elsewhere in this issue of the Federal Register.
Explanation of Provisions
1. Overview
Section 411(a)(11) provides that, if the value of a participant's
accrued benefit exceeds $3,500, a qualified plan generally may not
distribute the benefit to the participant without the participant's
consent.
Section 401(a)(11) requires that certain distributions be made in
the form of a qualified joint and survivor annuity (QJSA) unless, in
accordance with section 417, the participant waives the QJSA and elects
a different form of benefit. Profit-sharing plans and stock bonus plans
that meet the requirements of sections 401(a)(11)(B)(iii) (I) through
(III) are not subject to the survivor annuity requirements of sections
401(a)(11) and 417.
Section 417 sets forth the requirements applicable to a waiver of
the QJSA. Section 417(a) requires the participant to obtain the consent
of the participant's spouse, if any, to any waiver of the QJSA and
election of a form of benefit other than a QJSA. Any election made by
the participant must be revocable during the 90-day period ending on
the annuity starting date. Section 417(a)(3) requires that, within a
reasonable period of time before the participant's annuity starting
date, a plan provide the participant with a notice explaining the
participant's right to the QJSA and the participant's right to waive
the QJSA.
2. Implementation of Notice 93-26 Modification of 30-Day Period
Under Notice 93-26, if, after having received the notice of
distribution rights described in Sec. 1.411(a)-11, a participant
affirmatively elects a distribution, a plan will not fail to satisfy
the consent requirement of section 411(a)(11) merely because the
distribution is made less than 30 days after the notice was provided to
the participant. However, the participant must be notified that he or
she has the opportunity to consider whether to elect a distribution
(and, if applicable, a particular distribution option) for at least 30
days after the notice is provided. The plan administrator may provide
this information to the participant using any method that is reasonably
designed to attract the attention of the participant.
The comments on the guidance in Notice 93-26 with respect to
section 411(a)(11) were generally favorable. Accordingly, these
temporary regulations amend Sec. 1.411(a)-11 by modifying the 30-day
rule in a manner consistent with Notice 93-26.
The final UCA regulations and these temporary regulations are
structured to allow plan administrators to provide the participant
notices required under sections 402(f), 411(a)(11) and 417 at the same
time. Under the final UCA regulations, the section 402(f) notice must
be provided no more than 90 and no less than 30 days before the date of
distribution. Similarly, these temporary regulations provide that the
30-day and 90-day periods for purposes of the section 411(a)(11) notice
are measured from the date that the distribution commences.
Alternatively, the plan administrator may substitute the annuity
starting date, as defined in Sec. 1.401(a)-20, Q&A-10, for the date the
distribution commences for purposes of both the section 402(f) notice
and the section 411(a)(11) notice. If a plan administrator uses this
alternative, the 90/30-day time period will be the same for the notices
required under sections 402(f), 411(a)(11) and 417.
[[Page 49220]]
3. Modification of 30-Day Time Period for QJSA Explanation
Notice 93-26 did not affect the requirements that sections
401(a)(11) and 417 and related regulations impose on distributions
subject to those sections. Some commentators requested that the
modification provided in Notice 93-26 with respect to section
411(a)(11) be made to the 30-day time period in the regulations under
section 417. These temporary regulations under section 417 provide
substantial relief from the constraints imposed by the 30-day time
period but, for the reasons noted below, do not adopt a rule that is
identical to that provided under section 411(a)(11).
After careful consideration, the IRS and Treasury have concluded
that it would not be consistent with the statutory purpose of section
417 to adopt the same modification to the 30-day time period that was
adopted by Notice 93-26 under section 411(a)(11). Plans subject to
section 417 often provide a variety of distribution options that may
have different actuarial values and can be difficult to evaluate. In
addition, section 417 establishes a revocation period for a waiver of
the QJSA and provides explicit safeguards to ensure informed consent of
the participant and the participant's spouse. For example, section 417
requires witnessed or notarized spousal consent that acknowledges the
effect of the election to waive the QJSA. This statutory structure
reflects Congressional recognition that a distribution election with
respect to annuity benefits is an important financial decision that
affects the retirement security of the participant and the
participant's spouse. In view of these concerns, these temporary
regulations retain a minimum period for participants and spouses to
consider or reconsider the distribution options after the section 417
notice is provided.
However, the IRS and Treasury are also aware that, if a plan
provides an unreduced early retirement annuity, the application of the
current 30-day election and revocation period might cause the
participant to lose a month's benefit. Moreover, a full 30-day election
and revocation period may not be necessary for a participant (and where
applicable, the participant's spouse) who, after being provided with
the opportunity to carefully consider the decision, affirmatively
elects a form of distribution.
In order to address these concerns, while still providing
sufficient time to consider (or reconsider) the decision whether to
waive the QJSA, these temporary regulations permit the plan (or, where
not inconsistent with the terms of the plan, the plan administrator) to
commence distributions before the end of the 30-day time period, if
certain requirements are met. Specifically, after an affirmative
distribution election, with any applicable spousal consent, the plan
may permit the distribution to commence at any time more than seven
days after the explanation of the QJSA was provided to the participant.
The annuity starting date must be a date after the explanation of the
QJSA is provided to the participant, but may precede the date the
participant affirmatively elects a distribution or the date the
distribution commences. Any distribution election must remain revocable
until the later of the annuity starting date or the expiration of the
seven-day period that begins the day after the QJSA explanation is
provided. For example, if a married participant receives the
explanation of the QJSA on November 28 and elects (with spousal
consent) on December 2 to waive the QJSA and receive an immediate
single life annuity, the annuity starting date is permitted to be
December 1, provided that the first payment is made no earlier than
December 6 and the participant does not revoke the election before that
date.
4. 90-Day Time Period and Method of Providing Notice
Some commentators requested an expansion of the 90-day time period.
More broadly, commentators asked that the requirements of sections
411(a)(11), 417, and 402(f) be addressed in the context of new
technologies that use electronic media, such as telephone or computer
systems, to automate plan administrative functions that traditionally
have been processed manually by use of paper-based systems (e.g.,
notices to participants and participant distribution requests). For
example, some commentators have suggested that plans be permitted to
provide an annual written notice if a summary of the notice is provided
through these new technologies.
The IRS and Treasury continue to believe that the section
411(a)(11) and section 417 notices, as well as the section 402(f)
notice, should be provided close to the time participants are
considering the distribution to which the notice applies. Therefore,
these temporary regulations do not change the 90-day time period.
Although these temporary regulations provide no additional guidance
on the use of electronic media, the IRS and Treasury will continue to
consider possible modifications to the notice and consent requirements
that might be appropriate to accommodate new technologies, if adequate
safeguards are provided, and invite comments on this issue. These final
regulations specifically delegate authority to the Commissioner to
modify the notice, consent, and election requirements or provide
additional guidance, in the Internal Revenue Bulletin, with respect to
those requirements.
5. Effective Date
Because these temporary regulations relax the requirements that
plans must satisfy, they are effective September 22, 1995.
Special Analyses
It has been determined that this Treasury decision is not a
significant regulatory action as defined in EO 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not apply to
these regulations, and, therefore, a Regulatory Flexibility Analysis is
not required. Pursuant to section 7805(f) of the Internal Revenue Code,
these temporary regulations will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on their
impact on small business.
Drafting Information
The principal author of these regulations is Marjorie Hoffman,
Office of the Associate Chief Counsel (Employee Benefits and Exempt
Organizations), IRS. However, other personnel from the IRS and Treasury
Department participated in their development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 602
Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 602 are amended as follows:
PART 1--INCOME TAXES
Paragraph 1. The authority citation for part 1 continues to read,
in part, as follows:
Authority: 26 U.S.C. 7805. * * *
[[Page 49221]]
Par. 2. Sec. 1.411(a)-(11) is amended as follows:
1. Paragraph (c)(2)(ii) is revised to read as set forth below.
2. Paragraph (c)(2)(iii) is removed.
Sec. 1.411(a)-11 Restriction and valuation of distributions.
* * * * *
(c) * * *
(2) * * *
(ii) For additional rules concerning the consent requirement of
section 411(a)(11), see Sec. 1.411(a)-11T(c)(2)(ii) through (v) and
(c)(8).
* * * * *
Par. 3. Sec. 1.411(a)-11T is added to read as follows:
Sec. 1.411(a)-11T Restriction and valuation of distributions
(temporary).
(a) and (b) [Reserved]
(c) Consent, etc. requirements--(1) General rule. [Reserved]
(2) Consent--(i) [Reserved]
(ii) Written consent of the participant to the distribution must
not be made before the participant receives the notice of his or her
rights specified in this paragraph (c)(2) and must not be made more
than 90 days before the date the distribution commences.
(iii) A plan must provide participants with notice of their rights
specified in this paragraph (c)(2) no less than 30 days and no more
than 90 days before the date the distribution commences. However, if
the participant, after having received this notice, affirmatively
elects a distribution, a plan will not fail to satisfy the consent
requirement of section 411(a)(11) merely because the distribution
commences less than 30 days after the notice was provided to the
participant, provided that the following requirement is met. The plan
administrator must provide information to the participant clearly
indicating that (in accordance with the first sentence of this
paragraph (c)(2)(iii)) the participant has a right to at least 30 days
to consider whether to consent to the distribution.
(iv) For purposes of satisfying the requirements of this paragraph
(c)(2), the plan administrator may substitute the annuity starting
date, within the meaning of Sec. 1.401(a)-20, Q&A-10, for the date the
distribution commences.
(v) See Sec. 1.401(a)-20, Q&A-24 for a special rule applicable to
consents to plan loans.
(3) through (7) [Reserved].
(8) Delegation to Commissioner. The Commissioner, in revenue
rulings, notices, and other guidance published in the Internal Revenue
Bulletin, may modify, or provide additional guidance with respect to,
the notice and consent requirements of this section. See
Sec. 601.601(d)(2)(ii)(b) of this chapter.
Par. 4. Sec. 1.417(e)-1 is amended by revising paragraph (b)(3) to
read as follows:
Sec. 1.417(e)-1 Restrictions and valuations of distributions from
plans subject to sections 401(a)(11) and 417.
* * * * *
(b) * * *
(3) Time of consent. For distributions on or after September 22,
1995, the additional rules concerning the notice and consent
requirements of section 417 in Sec. 1.417(e)-1T(b) (3) and (4) also
apply. For distributions before September 22, 1995, the additional
rules concerning the notice and consent requirements of section 417 in
Sec. 1.417(e)-1(b)(3) (as it appeared in the April 1, 1995 edition of
26 CFR part 1) apply.
* * * *
Par. 5. Section 1.417(e)-1T is amended by adding paragraph (b) to
read as follows:
Sec. 1.417(e)-1T Restrictions and valuations of distributions from
plans subject to sections 401(a)(11) and 417 (temporary).
* * * * *
(b) Consent, etc. requirements--(1) General rule. [Reserved]
(2) Consent. [Reserved]
(3) Time of consent--(i) Written consent of the participant and the
participant's spouse to the distribution must be made not more than 90
days before the annuity starting date.
(ii) A plan must provide participants with the written explanation
of the QJSA required by section 417(a)(3) no less than 30 days and no
more than 90 days before the annuity starting date. However, if the
participant, after having received the written explanation of the QJSA,
affirmatively elects a form of distribution and the spouse consents to
that form of distribution (if necessary), a plan will not fail to
satisfy the requirements of section 417(a) merely because the annuity
starting date is less than 30 days after the written explanation was
provided to the participant, provided that the following requirements
are met:
(A) The plan administrator provides information to the participant
clearly indicating that (in accordance with the first sentence of this
paragraph (b)(3)(ii)) the participant has a right to at least 30 days
to consider whether to waive the QJSA and consent to a form of
distribution other than a QJSA.
(B) The participant is permitted to revoke an affirmative
distribution election at least until the annuity starting date, or, if
later, at any time prior to the expiration of the 7-day period that
begins the day after the explanation of the QJSA is provided to the
participant.
(C) The annuity starting date is after the date that the
explanation of the QJSA is provided to the participant. However, the
plan may permit the annuity starting date to be before the date that
any affirmative distribution election is made by the participant and
before the date that the distribution is permitted to commence under
paragraph (b)(3)(ii)(D) of this section.
(D) Distribution in accordance with the affirmative election does
not commence before the expiration of the 7-day period that begins the
day after the explanation of the QJSA is provided to the participant.
(iii) The following example illustrates the provisions of this
paragraph (b)(3):
Example. Employee E, a married participant in a defined benefit
plan who has terminated employment, is provided with the explanation
of the QJSA on November 28. Employee E elects (with spousal consent)
on December 2 to waive the QJSA and receive an immediate
distribution in the form of a single life annuity. The plan may
permit Employee E to receive payments with an annuity starting date
of December 1, provided that the first payment is made no earlier
than December 6 and the participant does not revoke the election
before that date. The plan can make the remaining monthly payments
on the first day of each month thereafter in accordance with its
regular payment schedule.
(4) Delegation to Commissioner. The Commissioner, in revenue
rulings, notices, and other guidance published in the Internal Revenue
Bulletin, may modify, or provide additional guidance with respect to,
the notice and consent requirements of this section. See
Sec. 601.601(d)(2)(ii)(b) of this chapter.
* * * * *
PART 602--OMB CONTROL NUMBERS UNDER THE PAPERWORK REDUCTION ACT
Par. 6. The authority citation for part 602 continues to read as
follows:
Authority: 26 U.S.C. 7805.
Par. 7. In Sec. 602.101, paragraph (c) is amended by adding to the
table the following entries in numerical order to read as follows:
Sec. 602.101 OMB control numbers.
* * * * *
(c) * * *
------------------------------------------------------------------------
Current OMB
CFR part or section where identified and described control No.
------------------------------------------------------------------------
* * * * *
1.411(a)-11T............................................... 1545-1471
[[Page 49222]]
* * * * *
1.417(e)-1T................................................ 1545-1471
* * * * *
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Margaret Milner Richardson,
Commissioner of Internal Revenue.
Approved: August 29, 1995.
Cynthia G. Beerbower,
Deputy Assistant Secretary of the Treasury.
[FR Doc. 95-23263 Filed 9-15-95; 4:00 pm]
BILLING CODE 4830-01-U
