\[4830-01-p\]

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1

\[REG‑112039‑03\]

RIN 1545-BC35

Elimination of Forms of Distribution in Defined Contribution Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

SUMMARY: This document contains proposed regulations that would modify
the circumstances under which certain forms of distribution previously
available are permitted to be eliminated from qualified defined
contribution plans. These proposed regulations affect qualified
retirement plan sponsors, administrators, and participants. This
document also provides notice of a public hearing on these proposed
regulations.

DATES: Written and electronic comments and request for a public hearing
must be received by October 6, 2003.

ADDRESSES: Send submissions to: CC:PA:RU (REG‑112039-03), room

5226, Internal Revenue Service, POB 7604, Ben Franklin Station,

Washington, DC 20044. Submissions may be hand delivered Monday through

Friday between the hours of 8 a.m. and 5 p.m. to: CC:PA:RU
(REG‑112039-03), Courier\'s Desk, Internal Revenue Service, 1111
Constitution Avenue NW., Washington, DC. Alternatively, taxpayers may
submit comments electronically directly to the IRS Internet site at:
www.irs.gov/regs. The public hearing will be held in room
\_\_\_\_\_\_\_\_\_, Internal Revenue Building, 1111 Constitution Avenue
NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Vernon S.
Carter, 202-622-6060; concerning submissions and the hearing, and/or to
be placed on the building access list to attend the hearing, LaNita
VanDyke, 202‑622‑7190 (not toll‑free numbers).

SUPPLEMENTARY INFORMATION:

**Explanation of Provisions**

This document contains proposed amendments to 26 CFR part 1 under
section 411(d)(6) of the Internal Revenue Code of 1986 (Code) as amended
by the Economic Growth and Tax Relief Reconciliation Act of 2001
(EGTRRA) (115 Stat. 117). Section 411(d)(6)(A) of the Code generally
provides that a plan will not be treated as satisfying the requirements
of section 411 if the accrued benefit of a participant is decreased by a
plan amendment. Section 411(d)(6)(B) prior to amendment by EGTRRA
provided that an amendment is treated as reducing an accrued benefit if,
with respect to benefits accrued before the amendment is adopted, the
amendment has the effect of either eliminating or reducing an early
retirement benefit or a retirement-type subsidy, or, except as provided
by regulations, eliminating an optional form of benefit.

The IRS published TD 8900 in the **Federal Register** on September 6,
2000 (65 FR 53901). TD 8900, which amended section §1.411(d)-4 of the
Income Tax Regulations, added paragraph (e) of Q&A-2 to provide for
additional circumstances under which a defined contribution plan can be
amended to eliminate or restrict a participant's right to receive
payment of accrued benefits under certain optional forms of benefit.

Section 1.411(d)-4, Q&A-2(e)(1) provides that a defined contribution
plan may be amended to eliminate or restrict a participant=s right to
receive payment of accrued benefits under a particular optional form of
benefit without violating the section 411(d)(6) anti-cutback rules if,
once the plan amendment takes effect for a participant, the alternative
forms of payment that remain available to the participant include
payment in a single-sum distribution form that is Aotherwise identical@
to the eliminated or restricted optional form of benefit. The amendment
cannot apply to a participant for any distribution with an annuity
starting date before the earlier of the 90^th^ day after the participant
receives a summary that reflects the plan amendment and that satisfies
Department of Labor=s requirements for a summary of material
modifications under 29 CFR 2520.104b-3, or the first day of the second
plan year following the plan year in which the amendment is adopted.
Section §1.411(d)-4, Q&A-2(e)(2) provides that a single-sum distribution
form is Aotherwise identical@ to the optional form of benefit that is
being eliminated or restricted only if it is identical in all respects
(or would be identical except that it provides greater rights to the
participant), except for the timing of payments after commencement. A
single-sum distribution form is not Aotherwise identical@ to a specified
installment form of benefit if the single-sum form:

-   is not available for distribution on any date on which the
    installment form could have commenced;

-   is not available in the same medium as the installment form; or

-   imposes any additional condition of eligibility.

Further, an otherwise identical distribution form need not retain any
rights or features of the eliminated or restricted optional form of
benefit to the extent those rights or features would not be protected
from elimination under the anti-cutback rules. The single-sum
distribution form would not, however, be disqualified from being an
otherwise identical distribution form if the single-sum form provides
greater rights to participants than did the eliminated or restricted
optional form of benefits.

Section 645(a)(1) of EGTRRA revised section 411(d)(6) in a manner that
is similar to §1.411(d)-4, Q&A‑2(e), but without the advance notice
condition. Section 411(d)(6)(E) of the Code provides that, except to the
extent provided in regulations, a defined contribution plan is not
treated as reducing a participant's accrued benefit where a plan
amendment eliminates a form of distribution previously available under
the plan if a single-sum distribution is available to the participant at
the same time as the form of distribution eliminated by the amendment,
and the single-sum distribution is based on the same or greater portion
of the participant's account as the form of distribution eliminated by
the amendment.

To reflect the addition of section 411(d)(6)(E) by EGTRRA, these
proposed regulations would amend §1.411(d)-4, Q&A-2(e). Under these
amendments, the regulations would retain the rules under which a defined
contribution plan may be amended to eliminate or restrict a
participant=s right to receive payment of accrued benefits under a
particular optional form of benefit without violating the section
411(d)(6) anti-cutback rules if, once the plan amendment takes effect
for a participant, the alternative forms of payment that remain
available to the participant include payment in a single-sum
distribution. However, these proposed regulations would remove the
90-day notice condition previously applicable to these plan
amendments.[^1]

Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 47713),
the

Secretary of the Treasury has interpretive jurisdiction over the subject
matter addressed

in these regulations for purposes of the Employee Retirement Income
Security Act of

1974 (ERISA), as well as the Code. Section 204(g)(2) of ERISA, as
amended by

EGTRRA, provides a parallel rule to section 411(d)(6)(E) of the Code
that applies under

Title I of ERISA, and authorizes the Secretary of the Treasury to
provide exception to

this parallel ERISA requirement. Therefore, these regulations apply for
purposes of the

parallel requirements of sections 204(g)(2) of ERISA, as well as for
section 411(d)(6)(E)

of the Code.

**Effective Date and Applicability Date**

The proposed regulations are proposed to apply on the date of
publication of final regulations in the **Federal Register**.

**Special Analyses**

It has been determined that this Treasury decision is not a significant
regulatory action as defined in Executive Order 12866. Therefore, a
regulatory assessment is not required. It also has been determined that
section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5)
does not apply to these regulations, and because the regulation does not
impose a collection of information on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) does not apply. Pursuant to section
7805(f) of the Code, this notice of proposed rulemaking will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on its impact on small business.

**Drafting Information**

The principal author of these regulations is Vernon S. Carter of the
Office of the Division Counsel/Associate Chief Counsel (Tax Exempt and
Government Entities). However, other personnel from the IRS and Treasury
participated in their development.

**List of Subjects in 26 CFR Parts 1**

Income taxes, Reporting and recordkeeping requirements.

**Amendments to the Regulations**

Accordingly, 26 CFR part 1 is proposed to be amended as follows:

**Paragraph 1.** The authority citation for part 1 is amended to read in
part as follows:

> **Authority:** 26 U.S.C. 7805 \* \* \*
>
> Section 1.411(d)-4, Q&A-2(e) also issued under 26 U.S.C. 411(d)(6)(E).
> \* \* \*

**Par. 2.** Section 1.411(d)-4, Q&A-2(e) is revised to read as follows:

[§1.411(d)-4 Section 411(d)(6) protected benefits.]{.underline}

\* \* \* \* \*

A-2: \* \* \*

\(e\) [Permitted plan amendments affecting alternative forms of payment
under defined contribution plans]{.underline}\--(1) [General
rule]{.underline}. A defined contribution plan does not violate the
requirements of section 411(d)(6) merely because the plan is amended to
eliminate or restrict the ability of a participant to receive payment of
accrued benefits under a particular optional form of benefit if, after
the plan amendment is effective with respect to the participant, the
alternative forms of payment available to the participant include
payment in a single-sum distribution form that is otherwise identical to
the optional form of benefit that is being eliminated or restricted.

\(2\) [Otherwise identical single-sum distribution]{.underline}. For
purposes of this paragraph (e), a single-sum distribution form is
otherwise identical to an optional form of benefit that is eliminated or
restricted pursuant to paragraph (e)(1) of this Q&A-2 only if the
single-sum distribution form is identical in all respects to the
eliminated or restricted optional form of benefit (or would be identical
except that it provides greater rights to the participant) except with
respect to the timing of payments after commencement. For example, a
single-sum distribution form is not otherwise identical to a specified
installment form of benefit if the single-sum distribution form is not
available for distribution on the date on which the installment form
would have been available for commencement, is not available in the same
medium of distribution as the installment form, or imposes any condition
of eligibility that did not apply to the installment form. However, an
otherwise identical distribution form need not retain rights or features
of the optional form of benefit that is eliminated or restricted to the
extent that those rights or features would not be protected from
elimination or restriction under section 411(d)(6) or this section.

\(3\) [Example.]{.underline} The following example illustrates the
application of this paragraph (e):

[Example.]{.underline} (i) P is a participant in Plan M, a qualified
profit-sharing plan with a calendar plan year that is invested in mutual
funds. The distribution forms available to P under Plan M include a
distribution of P\'s vested account balance under Plan M in the form of
distribution of various annuity contract forms (including a single life
annuity and a joint and survivor annuity). The annuity payments under
the annuity contract forms begin as of the first day of the month
following P\'s severance from employment (or as of the first day of any
subsequent month, subject to the requirements of section 401(a)(9)). P
has not previously elected payment of benefits in the form of a life
annuity, and Plan M is not a direct or indirect transferee of any plan
that is a defined benefit plan or a defined contribution plan that is
subject to section 412. Distributions on the death of a participant are
made in accordance with plan provisions that comply with section
401(a)(11)(B)(iii)(I). On May 2, 2004, Plan M is amended so that, after
the amendment is effective, P is no longer entitled to any distribution
in the form of the distribution of an annuity contract. However, after
the amendment is effective, P is entitled to receive a single-sum cash
distribution of P\'s vested account balance under Plan M payable as of
the first day of the month following P\'s severance from employment (or
as of the first day of any subsequent month, subject to the requirements
of section 401(a)(9)). The amendment does not apply to P if P elects to
have annuity payments begin before July 1, 2004.

\(ii\) Plan M does not violate the requirements of section 411(d)(6) (or
section 401(a)(11)) merely because, as of July 1, 2004, the plan
amendment has eliminated P\'s option to receive a distribution in any of
the various annuity contract forms previously available.

\(4\) [Effective date.]{.underline} This paragraph (e) is applicable on
the date of publication of final regulations in the **Federal
Register**.

\* \* \* \* \*

> Robert E. Wenzel,
>
> Deputy Commissioner for Services and Enforcement.

[^1]: The Department of Labor has advised Treasury and the IRS that it
    should be noted that plans covered by Title I of ERISA will continue
    to be subject to the requirement under Title I that plan amendments
    be described in a timely summary of material modifications (SMM) or
    a revised summary plan description (SPD) to be distributed to plan
    participants and beneficiaries in accordance with applicable
    Department of Labor disclosure rules (see 29 CFR 2520.104b-3).\"