Notice, Consent, and Election Requirements of Sections 411(a)(11) and 417

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.

-----------------------------------------------------------------------

[[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

* * * * *

------------------------------------------------------------------------

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