Valuation of Plan Distributions

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 8591]

RIN 1545-AT28

Valuation of Plan Distributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Temporary regulations.

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SUMMARY: This document contains temporary regulations that provide

guidance to employers in determining the present value of an employee's

benefit under a qualified defined benefit pension plan, for purposes of

the applicable consent rules and for purposes of determining the amount

of a distribution made in any form other than in certain nondecreasing

annuity forms. These temporary regulations are issued to reflect

changes to the applicable law made by the Retirement Protection Act of

1994 (RPA '94), which is part of the Uruguay Round Agreements Act of

1994. RPA '94 amended the law to change the interest rate, and to

specify the mortality table, for the purposes described above. The text

of these 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.

DATES: These regulations are effective April 5, 1995.

These regulations apply to plan years beginning after December 31,

1994, except as provided in Sec. 1.417(e)-1T(d)(8) and (9).

FOR FURTHER INFORMATION CONTACT: Linda S. F. Marshall, (202) 622-4606

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Short Description

The temporary regulations in this document set out rules for

computing the amount of any benefit under a qualified defined benefit

pension plan that is paid in any form other than certain annuity forms.

These temporary regulations reflect changes made to the law in the

Retirement Protection Act of 1994 (RPA '94) Pub. L. 103-465. Under the

new law, if the annuity benefit an employee could receive under the

plan is converted to a different form of benefit, the non-annuity

benefit cannot be less than the value that would be determined using

legally required assumptions regarding life expectancy (mortality

table) and interest rate. This ensures that the non-annuity benefit

will not be less valuable than the annuity benefit.

Under these temporary regulations, the mortality table used under

the new law is the mortality table published by the IRS (currently a

mortality table commonly used by state insurance commissioners). The

interest rate used under the new law is the interest rate on 30-year

Treasury securities, as published by the IRS. These temporary

regulations allow an employer to choose a monthly, quarterly, or annual

period during which the plan's interest rate remains constant, and

allow an [[Page 17217]] employer to determine the rate up to five

months before the period begins.

These temporary regulations provide that, for most pension plans in

place on December 7, 1994, the employer can choose to have the new law

become effective any time between December 8, 1994, and the first day

of the first plan year beginning after December 31, 1999. These

temporary regulations also specify how employers can amend their

pension plans to change the mortality table and interest rate used to

compute the amount of a distribution, without causing any prohibited

reduction in benefits.

Background

This document contains amendments to the Income Tax Regulations (26

CFR Part 1) under section 417(e). Section 417(e) was amended by RPA

'94. These temporary regulations provide guidance related to the

determination of the present value of an employee's benefit under a

qualified defined benefit pension plan in accordance with the rules of

section 417(e)(3).

The rules of section 417(e)(3) are also relevant to the application

of section 411(a)(11) and section 415(b). Section 411(a)(11) provides

that a participant's benefit with a present value that exceeds $3,500

can be immediately distributed to a participant only with the

participant's consent. Under section 411(a)(11)(B), as amended by RPA

'94, the present value of a participant's benefit is calculated using

the rules of section 417(e)(3). Section 415(b) limits the maximum

benefit that can be provided under a qualified defined benefit plan.

Under section 415(b)(2)(E)(ii), as amended by RPA '94, the minimum

interest rate permitted to be used for certain purposes to determine

compliance with the limit under section 415(b) is the applicable

interest rate as defined in section 417(e)(3). Because the rules of

section 417(e)(3) affect the application of sections 411(a)(11)(B) and

415(b)(2)(E)(ii), the guidance provided by these temporary regulations

is relevant to the application of those provisions.

Explanation of Provisions

Section 417(e) restricts the ability of certain qualified

retirement plans to distribute a participant's benefit under the plan

without the consent of the participant and, in many cases, the

participant's spouse. The application of these restrictions is

determined based on the present value of the participant's benefit.

Prior to amendments made by RPA '94, section 417(e)(3) restricted the

interest rate to be used under a plan to calculate the present value of

a participant's benefit, but did not impose any restrictions on the

mortality table to be used for that purpose.

Under Sec. 1.417(e)-1(d), prior to amendment by these temporary

regulations, the interest rate limitations of section 417(e)(3) were

applied in determining whether participant or spousal consent to a

distribution was necessary, in determining the present value of any

accrued benefit, and in determining the amount of many types of

distributions. Further, under those regulations, the present value of

any optional form of benefit could not be less than the present value

of the normal retirement benefit determined in accordance with the

interest rate restrictions of section 417(e)(3). Section 767 of RPA '94

modified section 417(e)(3) to provide that the present value of a

participant's benefit is not less than the present value calculated by

using the applicable mortality table and the applicable interest rate.

Applicable Mortality Table

The applicable mortality table under section 417(e)(3) is defined

as the table prescribed by the Secretary based on the prevailing

commissioners' standard table (described in section 807(d)(5)(A)) used

to determine reserves for group annuity contracts issued on the date as

of which present value is being determined (without regard to any other

subparagraph of section 807(d)(5)). Currently, the prevailing

commissioners' standard table is the 1983 Group Annuity Mortality

Table. See Rev. Rul. 92-19, 1992-1 C.B. 227. These temporary

regulations provide that the applicable mortality table as described

above is to be prescribed by the Commissioner in revenue rulings,

notices or other documents of general applicability. That table is set

forth in Rev. Rul. 95-6, 1995-4 I.R.B. 22.

Applicable Interest Rate

Under section 417(e)(3), the applicable interest rate is defined as

the annual rate of interest on 30-year Treasury securities for the

month before the date of distribution or such other time as the

Secretary may by regulations prescribe. These temporary regulations

provide that the applicable interest rate for a month is the annual

interest rate on 30-year Treasury securities as specified by the

Commissioner for that month. Currently, this interest rate is the

interest rate published in Federal Reserve releases G.13 and H.15 as

the average yield on 30-year Treasury Constant Maturities for the

month. The interest rates for July 1994 through February 1995 are

specified as follows: 7.58 percent for July 1994, 7.49 percent for

August 1994, 7.71 percent for September 1994, 7.94 percent for October

1994, 8.08 percent for November 1994, 7.87 percent for December 1994

(see Notice 95-6, 1995-5 I.R.B. 47), 7.85 percent for January 1995 (see

Notice 95-9, 1995-10 I.R.B. 10), and 7.61 percent for February 1995

(see Notice 95-11, 1995-13 I.R.B. 8). The Commissioner will continue to

publish this interest rate for each month, shortly after the end of the

month.

The interest rate on 30-year Treasury Constant Maturities published

monthly in Federal Reserve releases G.13 and H.15 can also be obtained

by telephone from the Public Information Department of the Federal

Reserve Bank of New York at (212) 720-6130 (not a toll-free number).

Information regarding subscriptions to Federal Reserve releases G.13

and H.15 can be obtained from the Publications Department of the

Federal Reserve Board of Governors at (202) 452-3244 (not a toll-free

number).

Time for Determining Applicable Interest Rate

Section 417(e)(3)(A)(ii)(II) provides that the applicable interest

rate for distributions made during a month is the annual rate of

interest on 30-year Treasury securities for the month before the date

of distribution or such other time as the Secretary may by regulations

prescribe. These temporary regulations permit selection of a monthly,

quarterly or annual period during which the applicable interest rate

remains constant. Permitting selection of such a quarterly or annual

stability period allows plans to offer greater benefit stability than

is provided by the statutory rule, under which the applicable interest

rate changes monthly.

These temporary regulations provide that the applicable interest

rate for the stability period may be determined as the 30-year Treasury

rate for any one of the five calendar months preceding the first day of

the stability period. Permitting this ``lookback'' of up to five months

provides added flexibility and gives plan administrators and

participants more time to comply with applicable notice and election

requirements using the actual interest rate (instead of an estimate).

Thus, a plan may change the applicable interest rate monthly,

quarterly, or annually, and may determine the rate with reference to

one of the five months preceding the month, quarter, or year. For

example, if an employer with a calendar year plan wishes to use the

same interest rate for [[Page 17218]] all distributions in the plan

year (i.e., the annual stability period) and wishes to provide 90 days

for employee notices based on the actual interest rate, the plan can

provide that the applicable interest rate for the entire plan year is

the 30-year Treasury rate specified by the Commissioner for the prior

August (i.e., five calendar months before January 1, the first day of

the plan year).

Effective Dates

These temporary regulations are generally effective for plan years

beginning after December 31, 1994.

Under section 417(e)(3)(B) and these temporary regulations, the

general effective date for the RPA '94 rules is delayed for certain

plans until the first plan year that begins after December 31, 1999,

unless an employer takes earlier action. The delayed effective date

applies to a plan adopted and in effect before December 8, 1994, if the

provisions of the plan in effect on December 7, 1994, met the

requirements of section 417(e)(3) as in effect on December 7, 1994. For

such a plan, the present value of a distribution made before the first

day of the first plan year that begins after December 31, 1999, is

calculated under the provisions of the plan in effect on December 7,

1994, if the annuity starting date for the distribution occurs before

the date a plan amendment applying both the applicable mortality table

and the applicable interest rate rules added by RPA '94 is adopted or,

if later, is made effective.

These temporary regulations restate the rules applicable to plan

years beginning before January 1, 1995, without substantive change.

Those pre-1995 rules also apply to later plan years, to the extent that

the application of the RPA '94 rules is delayed as described above.

In addition, section 767(d)(1) of RPA '94 permits an employer to

elect to accelerate the effective date of the RPA '94 rules, and hence

these temporary regulations, in order to apply the RPA '94 rules to

distributions with annuity starting dates occurring after December 7,

1994, in plan years beginning before January 1, 1995. An employer that

makes a plan amendment applying the applicable mortality table and the

applicable interest rate rules of these regulations is treated as

making this election as of the date the plan amendment is adopted or,

if later, is made effective.

Relationship With Section 411(d)(6)

Section 411(d)(6) provides that a plan does not satisfy the

requirements of section 411 if the accrued benefit of a participant is

decreased by a plan amendment. In general, a plan amendment that

changes the interest rate or the mortality assumptions used for

purposes of determining the amount of any accrued benefit is subject to

section 411(d)(6). Consistent with regulations in effect prior to

amendment by these temporary regulations, these temporary regulations

provide limited section 411(d)(6) relief for certain plan amendments

that change the time for determining the applicable interest rate. A

plan amendment that changes the time for determining the applicable

interest rate will not be treated as violating section 411(d)(6), if

each distribution made until one year after the later of the

amendment's effective date or the amendment's adoption date is

calculated using the time for determining the applicable interest rate

as provided before or after the amendment, whichever produces the

larger benefit. For this purpose, all other plan provisions must be

applied as in effect after the amendment.

For example, assume that a calendar year plan is amended in March

1995, effective July 1, 1995, to change the interest rate used to

determine the present value of plan distributions from the PBGC

interest rate determined as of January 1 of the plan year that contains

the annuity starting date, to the 30-year Treasury security interest

rate for August of the year before the plan year that contains the

annuity starting date. The plan amendment will not be treated as

violating section 411(d)(6) if each distribution with an annuity

starting date after June 30, 1995, and before July 1, 1996, is

calculated using the 30-year Treasury rate for August of the year

before the plan year that contains the annuity starting date, or the

30-year Treasury rate for January of the plan year that contains the

annuity starting date, whichever produces the larger benefit.

Section 767(d)(2) of RPA '94 provides that a participant's accrued

benefit is not considered to be reduced in violation of section

411(d)(6) merely because the benefit is determined in accordance with

the applicable interest rate rules and the applicable mortality table

rules of section 417(e)(3)(A), as amended by RPA '94. These temporary

regulations provide that an interest rate may be eliminated under this

section 411(d)(6) relief rule if that interest rate is the PBGC

interest rate or a rate based on the PBGC interest rate. The PBGC has

advised the Service and Treasury that it has not made any decision at

this time on whether it will continue to publish the relevant interest

rates after the year 2000. Therefore, in amending plans to comply with

these temporary regulations, employers should not rely on the continued

publication of these rates by the PBGC beyond the year 2000.

These temporary regulations further provide that, where a plan

provided for the use of an interest rate not based on the PBGC interest

rate prescribed by section 417(e)(3) as in effect before amendments

made by RPA '94, a plan amendment that eliminates the use of that

interest rate and the associated mortality table may result in a

reduction of a participant's accrued benefit, which would violate the

requirements of section 411(d)(6). These temporary regulations provide

examples of the application of section 411(d)(6) and the special rule

of section 767(d)(2) of RPA '94, including an example illustrating the

use of a phase-in that provides for a smoother transition from the

plan's former terms to the new rules.

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 Linda S. F. Marshall,

Office of the Associate Chief Counsel (Employee Benefits and Exempt

Organizations). However, other personnel from the IRS and Treasury

Department participated in their development.

List of Subjects in 26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding

an entry in numerical order to read as follows:

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

[[Page 17219]] Section 1.417(e)-1T also issued under 26 U.S.C.

417(e)(3)(A)(ii)(II).

Par. 2. In Sec. 1.417(e)-1, paragraph (d) is revised to read as

follows:

Sec. 1.417(e)-1 Restrictions and valuations of distributions from

plans subject to sections 401(a)(11) and 417.

* * * * *

(d) Present value requirement. For rules regarding the present

value of a participant's accrued benefit and related matters, see

Sec. 1.417(e)-1T(d).

* * * * *

Par. 3. Sec. 1.417(e)-1T is added 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).

(a) through (c) [Reserved].

(d) Present value requirement--(1) General rule. A defined benefit

plan must provide that the present value of any accrued benefit and the

amount (subject to sections 411(c)(3) and 415) of any distribution,

including a single sum, must not be less than the amount calculated

using the applicable interest rate described in paragraph (d)(3) of

this section (determined for the month described in paragraph (d)(4) of

this section) and the applicable mortality table described in paragraph

(d)(2) of this section. The present value of any optional form of

benefit cannot be less than the present value of the normal retirement

benefit determined in accordance with the preceding sentence. The same

rules used for the plan under this paragraph (d) must also be used to

compute the present value of the benefit for purposes of determining

whether consent for a distribution is required under paragraph (b) of

this section.

(2) Applicable mortality table. The applicable mortality table is

the mortality table based on the prevailing commissioners' standard

table (described in section 807(d)(5)(A)) used to determine reserves

for group annuity contracts issued on the date as of which present

value is being determined (without regard to any other subparagraph of

section 807(d)(5)), that is prescribed by the Commissioner in revenue

rulings, notices, or other guidance, published in the Internal Revenue

Bulletin (see Sec. 601.601(d)(2)(ii)(b) of this chapter).

(3) Applicable interest rate--(i) General rule. The applicable

interest rate for a month is the annual interest rate on 30-year

Treasury securities as specified by the Commissioner for that month in

revenue rulings, notices or other guidance, published in the Internal

Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b) of this chapter).

(ii) Example. This example illustrates the rules of this paragraph

(d)(3):

Example. Plan A is a calendar year plan. For its 1995 plan year,

Plan A provides that the applicable mortality table is the table

described in Rev. Rul. 95-6, 1995-4 I.R.B. 22, and that the

applicable interest rate for Plan A is the annual interest rate on

30-year Treasury securities as specified by the Commissioner for the

first full calendar month preceding the calendar month that contains

the annuity starting date. Participant P is age 65 in January 1995,

which is the month that contains P's annuity starting date. P has an

accrued benefit payable monthly of $1,000 and has elected to receive

a distribution in the form of a single sum in January 1995. The

annual interest rate on 30-year Treasury securities as published by

the Commissioner for December 1994 is 7.87 percent. To satisfy the

requirements of section 417(e)(3) and this paragraph (d), the single

sum received by P may not be less than $111,351.

(4) Time for determining interest rate--(i) General rule. The

applicable interest rate to be used for a distribution is the rate

determined under paragraph (d)(3) of this section for the applicable

lookback month. The applicable lookback month for a distribution is the

lookback month (as described in paragraph (d)(4)(iii) of this section)

for the month (or other longer stability period described in paragraph

(d)(4)(ii) of this section) that contains the annuity starting date for

the distribution. The time for determining the applicable interest rate

for each participant's distribution must be determined in a consistent

manner that is applied uniformly to all participants in the plan.

(ii) Stability period. A plan must specify the period for which the

applicable interest rate remains constant. This stability period may be

one calendar month, one plan quarter, or one plan year.

(iii) Lookback month. A plan must specify the lookback month that

is used to determine the applicable interest rate. The lookback month

may be the first, second, third, fourth, or fifth full calendar month

preceding the first day of the stability period.

(iv) Additional determination dates. The Commissioner may

prescribe, in revenue rulings, notices or other guidance, published in

the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b)), other

times that a plan may provide for determining the applicable interest

rate.

(v) Example. This example illustrates the rules of this paragraph

(d)(4).

Example. Employer X maintains Plan A, a calendar year plan.

Employer X wishes to amend Plan A so that the applicable interest

rate will remain fixed for each plan quarter, and so that the

applicable interest rate for distributions made during each plan

quarter can be determined approximately 80 days before the beginning

of the plan quarter. To comply with the provisions of this paragraph

(d)(4), Plan A is amended to provide that the applicable interest

rate is the annual interest rate on 30-year Treasury securities as

specified by the Commissioner for the fourth calendar month

preceding the first day of the plan quarter during which the annuity

starting date occurs.

(5) Use of alternative interest rate and mortality table. If a plan

provides for use of an interest rate or mortality table other than the

applicable interest rate or the applicable mortality table, the plan

must provide that a participant's benefit must be at least as great as

the benefit produced by using the applicable interest rate and the

applicable mortality table. For example, where a plan provides for use

of an interest rate of 7% and the UP-1984 Mortality Table (see

Sec. 1.401(a)(4)-12, Standard mortality table) in calculating single-

sum distributions, the plan must provide that any single-sum

distribution is calculated as the greater of the single-sum benefit

calculated using this actuarial basis (i.e., 7% and the UP-1984

Mortality Table) and the single sum calculated using the applicable

interest rate and the applicable mortality table.

(6) Exceptions. This paragraph (d) (other than the provisions

relating to section 411(d)(6) requirements in paragraph (d)(10) of this

section) does not apply to the amount of a distribution under a

nondecreasing annuity payable for a period not less than the life of

the participant or, in the case of a QPSA, the life of the surviving

spouse. A nondecreasing annuity includes a QJSA, QPSA and an annuity

that decreases merely because of the cessation or reduction of Social

Security supplements or qualified disability payments (as defined in

section 411(a)(9)).

(7) Defined contribution plans. Because the accrued benefit under a

defined contribution plan equals the account balance, a defined

contribution plan is not subject to the requirements of this paragraph

(d), even though it is subject to section 401(a)(11).

(8) Effective date--(i) In general. This paragraph (d) is effective

for distributions with annuity starting dates in plan years beginning

after December 31, 1994.

(ii) Optional delayed effective date of Retirement Protection Act

of 1994 (RPA '94)(108 Stat. 5012) rules for plans adopted and in effect

before December 8, 1994. For a plan adopted and in effect before

December 8, 1994, the application of the rules relating to the

[[Page 17220]] applicable mortality table and applicable interest rate

under paragraphs (d) (2) through (4) of this section is delayed to the

extent provided in this paragraph (d)(8)(ii), if the plan provisions in

effect on December 7, 1994, met the requirements of section 417(e)(3)

and Sec. 1.417(e)-1(d) as in effect on December 7, 1994 (as contained

in 26 CFR part 1 revised April 1, 1995). In the case of a distribution

from such a plan with an annuity starting date that precedes the

optional delayed effective date described in paragraph (d)(8)(iv) of

this section, and that precedes the first day of the first plan year

beginning after December 31, 1999, the rules of paragraph (d)(9) of

this section (which generally apply to distributions with annuity

starting dates in plan years beginning before January 1, 1995) apply in

lieu of the rules of paragraphs (d) (2) through (4) of this section.

The interest rate under the rules of paragraph (d)(9) of this section

is determined under the provisions of the plan as in effect on December

7, 1994, reflecting the interest rate or rates published by the Pension

Benefit Guaranty Corporation (PBGC) and the provisions of the plan for

determining the date on which the interest rate is fixed. The above

described interest rate or rates published by the PBGC are those

determined by the PBGC (for the date determined under those plan

provisions) pursuant to the PBGC's methodology under the regulations of

the PBGC for determining the present value of a lump sum distribution

on plan termination under 29 CFR Part 2619 that were in effect on

September 1, 1993 (as contained in 29 CFR part 2619 revised July 1,

1994).

(iii) Optional accelerated effective date of RPA '94 rules. This

paragraph (d) is also effective for a distribution with an annuity

starting date after December 7, 1994, during a plan year beginning

before January 1, 1995, if the employer elects, on or before the

annuity starting date, to make the rules of this paragraph (d)

effective with respect to the plan as of the optional accelerated

effective date described in paragraph (d)(8)(iv) of this section. An

employer is treated as making this election by making the plan

amendments described in paragraph (d)(8)(iv) of this section.

(iv) Determination of delayed or accelerated effective date by plan

amendment adopting RPA '94 rules. The optional delayed effective date

of paragraph (d)(8)(ii) of this section, or the optional accelerated

effective date of paragraph (d)(8)(iii) of this section, whichever is

applicable, is the date plan amendments applying both the applicable

mortality table of paragraph (d)(2) of this section and the applicable

interest rate of paragraph (d)(3) of this section are adopted or, if

later, are made effective.

(9) Plan years beginning before January 1, 1995--(i) Interest rate.

(A) For distributions made in plan years beginning after December 31,

1986, and before January 1, 1995, the following interest rate described

in paragraph (d)(9)(i)(A)(1) or (2) of this section, whichever applies,

is substituted for the applicable interest rate for purposes of this

section--

(1) The rate or rates that would be used by the PBGC for a trusteed

single-employer plan to value the participant's (or beneficiary's)

vested benefit (PBGC interest rate) if the present value of such

benefit does not exceed $25,000; or

(2) 120 percent of the PBGC interest rate, as determined in

accordance with paragraph (d)(9)(i)(A)(1) of this section, if such

present value exceeds $25,000. In no event shall the present value

determined by use of 120 percent of the PBGC interest rate result in a

present value less than $25,000.

(B) The PBGC interest rate may be a series of interest rates for

any given date. For example, the PBGC interest rate for immediate

annuities for November 1994 is 6%, and the PBGC interest rates for the

deferral period for that month are as follows: 5.25% for the first 7

years of the deferral period, 4% for the following 8 years of the

deferral period, and 4% for the remainder of the deferral period. For

November 1994, 120 percent of the PBGC interest rate is 7.2% (1.2 times

6%) for an immediate annuity, 6.3% (1.2 times 5.25%) for the first 7

years of the deferral period, 4.8% (1.2 times 4%) for the following 8

years of the deferral period, and 4.8% (1.2 times 4%) for the remainder

of the deferral period. The PBGC interest rates are the interest rates

that would be used (as of the date of the distribution) by the PBGC for

purposes of determining the present value of that benefit upon

termination of an insufficient trusteed single employer plan. Except as

otherwise provided by the Commissioner, the PBGC interest rates are

determined by PBGC regulations. See 29 CFR part 2619 for the applicable

PBGC rates.

(ii) Time for determining interest rate. (A) Except as provided in

paragraph (d)(9)(ii)(B) of this section, the PBGC interest rate or

rates are determined on either the annuity starting date or the first

day of the plan year that contains the annuity starting date. The plan

must provide which date is applicable.

(B) The plan may provide for the use of any other time for

determining the PBGC interest rate or rates provided that such time is

not more than 120 days before the annuity starting date if such time is

determined in a consistent manner and is applied uniformly to all

participants.

(C) The Commissioner may, in revenue rulings, notices or other

guidance, published in the Internal Revenue Bulletin (see

Sec. 601.601(d)(2)(ii)(b)), prescribe other times for determining the

PBGC interest rate or rates.

(iii) No applicable mortality table. In the case of a distribution

to which this paragraph (d)(9) applies, the rules of this paragraph (d)

are applied without regard to the applicable mortality table described

in paragraph (d)(2) of this section.

(10) Relationship with section 411(d)(6)--(i) In general. Except as

provided in this paragraph (d)(10), a plan amendment that changes the

interest rate, the time for determining the interest rate, or the

mortality assumptions used for the purposes described in paragraph

(d)(1) of this section is subject to section 411(d)(6). But see

Sec. 1.411(d)-4, Q&A 2(b)(2)(v) (regarding plan amendments relating to

involuntary distributions).

(ii) Change in time for determining interest rate. Notwithstanding

the general rule of paragraph (d)(10)(i) of this section, if a plan

amendment changes the time for determining the applicable interest rate

(including an indirect change as a result of a change in plan year),

the amendment will not be treated as reducing accrued benefits in

violation of section 411(d)(6) merely on account of this change if the

conditions of this paragraph (d)(10)(ii) are satisfied. Any

distribution for which the annuity starting date occurs in the one-year

period commencing at the time the plan amendment is effective (if the

amendment is effective on or after the adoption date) must use the

interest rate as provided under the terms of the plan after the

effective date of the amendment, determined at either the date for

determining the interest rate before the amendment or the date for

determining the interest rate after the amendment, whichever results in

the larger distribution. If the plan amendment is adopted retroactively

(that is, the amendment is effective prior to the adoption date), the

plan must use the interest rate determination date resulting in the

larger distribution for the period beginning with the effective date

and ending one year after the adoption date.

(iii) Section 411(d)(6) relief for plan amendments pursuant to

changes to section 417 made by RPA '94--(A) [[Page 17221]] Replacement

of PBGC interest rate. A participant's accrued benefit is not

considered to be reduced in violation of section 411(d)(6) merely

because of a plan amendment that changes any interest rate or mortality

assumption used to calculate the present value of a participant's

benefit under the plan (even if the amendment provides for temporary

additional benefits to accommodate a more gradual transition from the

plan's old interest rate to the new rules), if the following conditions

are satisfied--

(1) The amendment replaces the PBGC interest rate (or an interest

rate or rates based on the PBGC interest rate) as the interest rate

used under the plan in determining the present value of a participant's

benefit under this paragraph (d); and

(2) After the amendment is effective, the present value of a

participant's benefit under the plan cannot be less than the amount

calculated using the applicable mortality table and the applicable

interest rate for the first full calendar month preceding the calendar

month that contains the annuity starting date.

(B) Replacement of non-PBGC interest rate. The section 411(d)(6)

relief provided in paragraph (d)(10)(iii)(A) of this section does not

apply to a plan amendment that replaces an interest rate other than the

PBGC interest rate (or an interest rate or rates based on the PBGC

interest rate) as an interest rate used under the plan in determining

the present value of a participant's benefit under this paragraph (d).

Thus, the accrued benefit determined using that interest rate and the

associated mortality table is protected under section 411(d)(6). For

purposes of paragraphs (d)(10)(iii)(A) and (B) of this section, an

interest rate is based on the PBGC interest rate if the interest rate

is defined as a specified percentage of the PBGC interest rate or as

the PBGC interest rate minus a specified number of basis points.

(C) Plan amendment providing for prior determination date or up to

two months earlier. If the special rule of paragraph (d)(10)(iii)(A) of

this section would apply to a plan except that the applicable interest

rate is determined for a month other than the first full calendar month

preceding the calendar month that contains the annuity starting date, a

participant's accrued benefit is not considered to be reduced in

violation of section 411(d)(6) if the applicable interest rate is

determined for the calendar month that contains the date as of which

the PBGC interest rate was determined immediately before the amendment,

or for one of the two calendar months immediately preceding that month,

or if the plan amendment satisfies the conditions of paragraph

(d)(10)(ii) of this section.

(D) Examples. The provisions of this paragraph (d)(10)(iii) are

illustrated by the following examples:

Example 1. On December 31, 1994, Plan A provided that all

single-sum distributions were to be calculated using the UP-1984

Mortality Table and 100% of the PBGC interest rate for the date of

distribution. On January 4, 1995, and effective on February 1, 1995,

Plan A was amended to provide that all single-sum distributions are

calculated using the applicable mortality table and the annual

interest rate on 30-year Treasury securities for the first full

calendar month preceding the calendar month that contains the

annuity starting date. This amendment of Plan A is not considered to

reduce the accrued benefit of any participant in violation of

section 411(d)(6).

Example 2. On December 31, 1994, Plan B provided that all

single-sum distributions were to be calculated using the UP-1984

Mortality Table and an interest rate equal to the lesser of 100% of

the PBGC interest rate for the date of distribution, or 6%. On

January 4, 1995, and effective on February 1, 1995, Plan B was

amended to provide that all single-sum distributions are calculated

using the applicable mortality table and the annual interest rate on

30-year Treasury securities for the second full calendar month

preceding the calendar month that contains the annuity starting

date. The 6% interest rate provided for under the plan is not based

on the PBGC interest rate. Therefore, to satisfy the requirements of

section 411(d)(6), the plan must provide that the single-sum

distribution payable to any participant must be no less than the

single-sum distribution calculated using the UP-1984 Mortality Table

and an interest rate of 6%, based on the participant's benefits

under the plan accrued through January 31, 1995, and based on the

participant's age at the annuity starting date.

Example 3. (a) Employer X maintains Plan C, a calendar year

plan. As of December 7, 1994, Plan C provided for single-sum

distributions to be calculated using the PBGC interest rate as of

the annuity starting date for distributions not greater than

$25,000, and 120% of that interest rate (but not an interest rate

producing a present value less than $25,000) for distributions over

$25,000. Employer X wishes to delay the effective date of the RPA

'94 rules for a year, and to provide for an extended transition from

the use of the PBGC interest rate to the new applicable interest

rate under section 417(e)(3). On December 1, 1995, and effective on

January 1, 1996, Employer X amends Plan C to provide that single-sum

distributions are determined as the sum of--

(i) The single-sum distribution calculated based on the

applicable mortality table and the annual interest rate on 30-year

Treasury securities for the first full calendar month preceding the

calendar month that contains the annuity starting date; and

(ii) A transition amount.

(b) The amendment provides that the transition amount for

distributions in the years 1996-99 is a transition percentage of the

excess, if any, of the amount that the single-sum distribution would

have been under the plan provisions in effect prior to this

amendment over the amount of the single sum described in paragraph

(a)(i) of this Example 3. The transition percentages are 80% for

1996, decreasing to 60% for 1997, 40% for 1998 and 20% for 1999. The

amendment also provides that the transition amount is zero for plan

years beginning on or after the year 2000. Plan C is not considered

to have reduced the accrued benefit of any participant in violation

of section 411(d)(6) by reason of this plan amendment.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: March 15, 1995.

Leslie Samuels,

Assistant Secretary of the Treasury.

[FR Doc. 95-8229 Filed 4-4-95; 8:45 am]

BILLING CODE 4830-01-U