Notice, Consent and Election Requirements of Sections 411(a)(11) and 417 for Qualified Retirement Plans

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8796]

RIN 1545-AU05

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

and 417 for Qualified Retirement Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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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 for

qualified retirement plans. These regulations finalize proposed

regulations published in the Federal Register on September 22, 1995. In

order to avoid delay in the commencement of distributions, the

regulations generally allow distributions to commence, with spousal

consent if required, in less than 30 days after a participant receives

a notice of distribution rights if the participant affirmatively so

elects to have the distributions commence. The regulations affect

employers that maintain qualified plans, and participants and

beneficiaries in those plans.

DATES: These regulations are effective December 18, 1998.

FOR FURTHER INFORMATION CONTACT: Robert Walsh, (202) 622-6090 (not a

toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in these final regulations

has been reviewed and approved by the Office of Management and Budget

in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under

the control number 1545-1471. Responses to this collection of

information are mandatory.

An agency may not conduct or sponsor, and a person is not required

to respond to, a collection of information unless the collection of

information displays a valid control number.

The estimated burden per respondent is .011 hours.

Comments concerning the accuracy of this burden estimate and

suggestions for reducing this burden should be sent to the Internal

Revenue Service, Attn: IRS Reports Clearance Officer, OP:FS:FP,

Washington, DC 20224, and to the Office of Management and Budget, Attn:

Desk Officer for the Department of the Treasury, Office of Information

and Regulatory Affairs, Washington, DC 20503.

Books or records relating to this 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). These

regulations finalize proposed regulations that were published as a

notice of proposed rulemaking (EE-24-93) (REG-209626-93) in the Federal

Register (60 FR 49236) on September 22, 1995. The notice of proposed

rulemaking states that the text of the proposed regulations is the same

as the text of temporary regulations which were published in the

Federal Register (60 FR 49218) on the same day. A public hearing was

held on the temporary regulations on April 24, 1996.

As indicated in Announcement 98-87 (1998-40 I.R.B. 11), the

temporary regulations automatically expired in September, 1998,

pursuant to section 7805(e). Announcement 98-87 provides, however, that

plan sponsors may rely upon the identical proposed regulations until

they are amended or finalized.

Prior to the issuance of the proposed regulations, Sec. 1.411(a)-

11(c) provided that a participant's consent to a distribution under

section 411(a)(11) was not valid unless the participant received 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 set

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) (QJSA explanation).

Temporary regulations providing guidance on the amendment to

section 402(f) made by the Unemployment Compensation Amendments of 1992

(UCA), published in October 1992, generally prescribed this 90/30-day

time period for purposes of the notice requirement under that section.

In the preamble to the UCA temporary 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 comments on the 90/30-day time period, the proposed

regulations modified the 30-day time period for purposes of sections

411(a)(11) and 417. Under the proposed regulations, 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.

The proposed regulations under section 417 made the same change to

Sec. 1.417(e)-1 and also provided a more limited modification to the

30-day time period in Sec. 1.417(e)-1. The reception to this change to

the 30-day period for purposes of section 417 was generally favorable.

Commentators expressed concern about the restatement in the

proposed regulations of the statutory requirement that the QJSA

explanation be provided before the annuity starting date because

[[Page 70010]]

this requirement precluded retroactive annuity payments for any period

before the explanation was provided. Subsequently, section 1451 of the

Small Business Job Protection Act of 1996, Public Law 104-188, 110

Stat. 1755 (SBJPA) added section 417(a)(7) to the Internal Revenue Code

effective for plan years beginning on or after January 1, 1997. Section

417(a)(7) permits the plan to provide the QJSA explanation after the

annuity starting date.

After consideration of the comments, these final regulations

generally adopt the provisions of the proposed regulations. However,

the final regulations under section 417 have been modified to provide

that, for plan years beginning after December 31, 1996, the requirement

that the QJSA explanation be provided before the annuity starting date

does not apply to the extent provided under section 417(a)(7).

Explanation of Provisions

1. Overview of Statutory Provisions

Section 411(a)(11) provides that, if the value of a participant's

accrued benefit exceeds $5,000, 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 (QJSA explanation).

Section 417(a)(7)(B), added by SBJPA, codified the provision in the

proposed regulations which provides that a plan may permit a

participant to elect (with applicable spousal consent) a distribution

with an annuity starting date after the QJSA explanation was provided

but before 30 days have elapsed, as long as the distribution commences

more than seven days after the explanation was provided. As discussed

above, section 417(a)(7)(A) further provides that a plan is permitted

to provide the QJSA explanation after the annuity starting date if the

distribution commences at least 30 days after such explanation was

provided, subject to the same waiver of the 30-day minimum waiting

period. This is intended to allow retroactive payments of benefits

which are attributable to the period before the explanation.

2. Waiver of 30-day Period for QJSA Explanation

The proposed regulations permit a plan administrator (where not

inconsistent with the terms of the plan) to commence distributions

before the end of the 30-day time period after the QJSA explanation is

provided, 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 QJSA explanation was provided to the participant.

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.

Most commentators expressed approval of this change to the 30-day

waiting period. However, one commentator indicated that this change

would create an incentive for participants to pressure their spouses to

consent to any waiver of the QJSA as quickly as possible. Because it

has been codified by section 417(a)(7)(B), the final regulations retain

this waiver provision.

3. Provision of QJSA Explanation After Annuity Starting Date

The proposed regulations provide that 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.

Commentators indicated that this rule disadvantaged participants

because it does not allow a retroactive annuity starting date to a date

before the QJSA explanation was provided. However, prior to its

amendment by SBJPA, the plain language of section 417 required the QJSA

explanation to be provided before the annuity starting date.

As discussed above, section 1451 of the SBJPA added section

417(a)(7)(A) to the Code. That section provides that a plan may provide

the QJSA explanation after the annuity starting date and that the

applicable election period shall not end before the 30th day after the

date on which the explanation is provided. Thus, section 417(a)(7)(A)

allows retroactive payments of benefits which are attributable to the

period before the QJSA explanation is provided. Accordingly, the final

regulations provide that, for plan years beginning after December 31,

1996, the requirement that the QJSA explanation be provided before the

annuity starting date does not apply to the extent provided under

section 417(a)(7).

Section 417(a)(7)(A) provides that the Secretary may by regulations

limit its application except that such regulations may not limit the

period of time by which the annuity starting date precedes the

provision of the written explanation other than by providing that the

annuity starting date may not be earlier than termination of

employment.

4. Use of Electronic Media for Notices and Consent

Comments on the proposed regulations requested that the IRS and

Treasury clarify the extent to which plans may use new technologies,

including electronic media, for providing notices under sections

402(f), 411(a)(11) and 417, and for receiving participant and

beneficiary consents and elections under sections 411(a)(11) and 417.

Subsequently, section 1510 of the Taxpayer Relief Act of 1997 (TRA '97)

provided generally for the Secretary of the Treasury to issue guidance

concerning the use of new technologies in the administration of

retirement plans. Announcement 98-62 (1998-29 I.R.B. 13) requested

comments on the guidance described in section 1510.

After consideration of the comments on the proposed regulations and

Announcement 98-62, the IRS and Treasury have decided to propose

regulations regarding the use of electronic media to provide notices

under sections 402(f), 411(a)(11), and section 3405(e)(10) and for

receiving participant consent under section 411(a)(11). Those proposed

regulations are set forth in a notice of proposed

[[Page 70011]]

rulemaking published elsewhere in this issue of the Federal Register.

5. 90-day Time Period

Comments on the proposed regulations requested an expansion of the

90-day time period, and the IRS and the Treasury have decided to

propose changes to the 90/30-day period for providing notices under

sections 402(f) and 411(a)(11). These changes are included in the

proposed regulations on the use of new technologies, which are set

forth in a notice of proposed rulemaking published elsewhere in this

issue of the Federal Register.

6. Effective Dates

The regulations apply to distributions on or after September 22,

1995. However, plan sponsors and plan administrators may rely on the

regulations under section 411(a)(11) as though they were included in

the final regulations under section 411(a)(11) published in 1988-2 C.B.

48.

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)

does not apply to these regulations, and because the notice of proposed

rulemaking was issued prior to March 29, 1996, the Regulatory

Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to

section 7805(f) of the Internal Revenue Code, the notice of proposed

rulemaking preceding these regulations was 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 Robert Walsh, 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 * * *

Par. 2. Section 1.411(a)-11 is amended as follows:

1. Paragraph (c)(2)(ii) is revised.

2. Paragraphs (c)(2)(iii), (c)(2)(iv), (c)(2)(v) and (c)(8) are

added.

The revision and additions read as follows:

Sec. 1.411(a)-11 Restriction and valuation of distributions.

* * * * *

(c) * * *

(2) * * *

(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.

* * * * *

(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.

* * * * *

Sec. 1.411(a)-11T [Removed]

Par. 3. Section 1.411(a)-11T is removed.

Par. 4. Section 1.417(e)-1 is amended as follows:

1. Paragraph (b)(3) is revised.

2. Paragraph (b)(4) is added.

The revision and addition 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. (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 (except as otherwise

provided by section 417(a)(7) for plan years beginning after December

31, 1996). 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 (except as

otherwise provided by section 417(a)(7) for plan years beginning after

December 31, 1996). However, the plan may permit the annuity starting

date to be before the date that any affirmative distribution

[[Page 70012]]

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.

(iv) The additional rules of this paragraph (b)(3) concerning the

notice and consent requirements of section 417 apply to distributions

on or after September 22, 1995. 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) in effect prior to

September 22, 1995 (see Sec. 1.417(e)-1 (b)(3) in 26 CFR Part 1 revised

as of April 1, 1995) apply.

(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.

* * * * *

Sec. 1.417(e)-1T [Amended]

Par. 5. In Sec. 1.417(e)-1T, paragraphs (b)(3) and (4) are removed.

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, the table in paragraph (c) is amended by

removing the entry for 1.411(a)-11T and adding the following entries in

numerical order to read as follows:

Sec. 602.101 OMB Control numbers.

* * * * *

(c) * * *

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Current OMB

CFR part or section where identified and described control No.

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* * * * *

1.411(a)-11................................................ 1545-1471

* * * * *

1.417(e)-1................................................. 1545-1471

* * * * *

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John M. Dalrymple,

Acting Deputy Commissioner of Internal Revenue.

Approved: December 2, 1998.

Donald C. Lubick,

Assistant Secretary of the Treasury.

[FR Doc. 98-32938 Filed 12-17-98; 8:45 am]

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