[4830-01-u]
DEPARTMENT OF THE TREASURY
Internal Revenue Service
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.
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 [INSERT DATE OF PUBLICATION OF
THIS DOCUMENT IN THE FEDERAL REGISTER].
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
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 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 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 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 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.
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 [INSERT DATE OF PUBLICATION OF THIS DOCUMENT
IN THE FEDERAL REGISTER].
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. * * *
     Par. 2.  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.
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 1.411(a)-11T(c)(2)(ii) through (v) and (c)(8).
* * * * *
     Par. 3.  1.411(a)-11T is added to read as follows:
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 1.401(a)-20, Q&A-10, for the date the distribution
commences.
     (v) See 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 601.601(d)(2)(ii)(b) of this chapter.
     Par. 4  1.417(e)-1 is amended by revising paragraph (b)(3) to read as
follows:
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 [INSERT DATE OF
PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER], the additional rules
concerning the notice and consent requirements of section 417 in 1.417(e)-
1T(b)(3) and (4) also apply.  For distributions before [INSERT DATE OF
PUBLICATION OF THIS DOCUMENT IN THE FEDERAL REGISTER], the additional rules
concerning the notice and consent requirements of section 417 in 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:
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 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 602.101, paragraph (c) is amended by adding to the table
the following entries in numerical order to read as follows:
602.101  OMB Control numbers.
*    *    *    *    *
     (c)  *    *    *
CFR part or section where                         Current OMB
identified and described                           control No.
*    *    *    *    *
1.411(a)-11T.....................................1545-1471
*    *    *    *    *
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