[Federal Register Volume 74, Number 172 (Tuesday, September 8, 2009)]
[Rules and Regulations]
[Pages 45993-45994]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-21453]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9459]
RIN 1545-BH53


Reasonable Good Faith Interpretation of Required Minimum 
Distribution Rules by Governmental Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations under sections 
401(a)(9) and 403(b) of the Internal Revenue Code (Code) to permit a 
governmental plan to comply with the required minimum distribution 
rules by using a reasonable and good faith interpretation of the 
statute. These regulations affect administrators of, employers 
maintaining, participants in, and beneficiaries of governmental plans.

DATES: Effective Date: These regulations are effective on September 8, 
2009.
    Applicability Date: These regulations apply to all plan years to 
which section 401(a)(9) applies to the plan.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Cathy V. 
Pastor or Michael P. Brewer at (202) 622-6090 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    Section 401(a)(9) provides required minimum distribution rules for 
a qualified trust under section 401(a). In general, under these rules, 
distribution of each participant's entire interest must begin by April 
1 of the calendar year following the later of (1) the calendar year in 
which the participant attains age 70\1/2\ or (2) the calendar year in 
which the participant retires (``the required beginning date''). If the 
entire interest of the participant is not distributed by the required 
beginning date, then section 401(a)(9)(A) provides that the entire 
interest of the participant must be distributed beginning not later 
than the required beginning date, in accordance with regulations, over 
the life of the participant or lives of the participant and a 
designated beneficiary (or over a period not extending beyond the life 
expectancy of the participant or the life expectancy of the participant 
and a designated beneficiary). Section 401(a)(9)(B) provides the 
required minimum distribution rules after the death of the participant.
    IRAs described in section 408, section 403(b) plans, and eligible 
deferred compensation plans under section 457(b), also are subject to 
the required minimum distribution rules of section 401(a)(9) pursuant 
to sections 408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2), 
respectively, and the regulations under those sections. In 2002, the 
IRS and the Treasury Department published final regulations under 
sections 401(a)(9), 403(b), and 408 in the Federal Register (67 FR 
18987). Section 1.401(a)(9)-1, A-2(a), provides that the final 
regulations apply for purposes of determining required minimum 
distributions for calendar years beginning on or after January 1, 2003. 
The rules for defined benefit plans and annuities were included in a 
temporary regulation, Sec.  1.401(a)(9)-6T, as well as in a proposed 
regulation (67 FR 18834) in order to allow taxpayers to comment on the 
rules.
    In 2004, the IRS and the Treasury Department replaced the temporary 
regulations with final regulations under Sec.  1.401(a)(9)-6 (69 FR 
33288). The final regulations contain a ``grandfather rule'' in Q&A-16, 
which provides that annuity distribution options provided under the 
terms of a governmental plan (within the meaning section 414(d)) as in 
effect on April 17, 2002, are treated as satisfying the requirements of 
section 401(a)(9) if they satisfy a reasonable and good faith 
interpretation of the provisions of section 401(a)(9). In addition, 
Q&A-17 provides that, for distributions from any defined benefit plan 
or annuity contract during 2003, 2004, and 2005, the payments could 
satisfy a reasonable and good faith interpretation of section 401(a)(9) 
in lieu of Sec.  1.401(a)(9)-6. For governmental plans, Sec.  
1.401(a)(9)-6, Q&A-17, extended this reasonable good faith standard to 
the end of the calendar year that contains the 90th day after the 
opening of the first legislative session of the legislative body with 
the authority to amend the plan that begins on or after June 15, 2004, 
if such 90th day is later than December 31, 2005.
    In 2003, the IRS and the Treasury Department published final 
regulations under section 457(b) in the Federal Register (68 FR 41230). 
These regulations included Sec.  1.457-6(d), which provides that a 
section 457(b) eligible plan must meet the requirements of section 
401(a)(9) and the regulations under that section.
    In 2007, the IRS and the Treasury Department published final 
regulations under section 403(b) in the Federal Register (72 FR 41128). 
These regulations, which become effective for tax years beginning after 
December 31, 2008, included Sec.  1.403(b)-6(e)(1), which provides that 
a section 403(b) contract must meet the requirements of section 
401(a)(9). Section 1.403(b)-6(e)(2) provides, with certain exceptions, 
that section 403(b) contracts apply the section 401(a)(9) required 
minimum distribution rules in accordance with Sec.  1.408-8.
    Section 1.408-8, Q&A-1, provides, with certain exceptions, that in 
order to satisfy section 401(a)(9) for purposes of determining required 
minimum distributions, the rules of Sec.  1.401(a)(9)-1 through 
1.401(a)(9)-9 must be applied.
    Section 823 of the Pension Protection Act of 2006, Public Law 109-
280 (120 Stat. 780) (PPA 06), instructs the Secretary of the Treasury 
to issue regulations under which, for all years to which section 
401(a)(9) applies, a governmental plan, within the meaning of section 
414(d), shall be treated as having complied with section 401(a)(9) if 
such plan complies with a reasonable good faith interpretation of 
section 401(a)(9).
    On July 10, 2008, the IRS and Treasury Department published a 
notice of proposed rulemaking (REG-142040-07) in the Federal Register 
(73 FR 39630-01) proposing regulations that would implement section 823 
of PPA 06 by amending the regulations under sections 401(a)(9) and 
403(b) of the Code. The IRS and Treasury Department received no 
comments on the proposed regulations and no public hearing was 
requested or held. Accordingly, the provisions of these final 
regulations are identical to the proposed regulations.

Explanation of Provisions

    The final regulations amend the regulations under section 401(a)(9) 
to treat a governmental plan, within the meaning of section 414(d), as 
having complied with the rules of section 401(a)(9) if the governmental 
plan applies a reasonable and good faith interpretation of section 
401(a)(9). The same rule applies to an eligible 457(b) plan maintained 
by a government. In addition, this rule applies to a section 403(b) 
contract that is part of a governmental plan, and the regulations under 
section 403(b) are amended accordingly. The final regulations also make 
conforming amendments to the regulations under section 401(a)(9) that 
eliminate other special rules for

[[Page 45994]]

governmental plans which are rendered superfluous with this change.

Effective/Applicability Date

    These regulations are effective on September 8, 2009 and apply to 
all plan years to which section 401(a)(9) applies.

Special Analyses

    It has been determined that these final regulations are 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 
Sec. Sec.  1.401(a)(9)-1 and 1.403(b)-6 do 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, the 
notice of proposed rulemaking preceding these regulations was submitted 
to the Chief Counsel for Advocacy of the Small Business Administration 
for comment on its impact on small business.

Drafting Information

    The principal authors of these regulations are Michael P. Brewer 
and Cathy V. Pastor, Office of Division Counsel/Associate Chief Counsel 
(Tax Exempt and Government Entities). However, other personnel from the 
IRS and the Treasury Department participated in the development of 
these regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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


0
Par. 2. Section 1.401(a)(9)-1 is amended by adding a new paragraph (d) 
to A-2 as follows:


Sec.  1.401(a)(9)-1  Minimum distribution requirement in general.

* * * * *
    A-2. * * *
    (d) Special rule for governmental plans. Notwithstanding anything 
to the contrary in this A-2, a governmental plan (within the meaning of 
section 414(d)), or an eligible governmental plan described in Sec.  
1.457-2(f), is treated as having complied with section 401(a)(9) for 
all years to which section 401(a)(9) applies to the plan if the plan 
complies with a reasonable and good faith interpretation of section 
401(a)(9).


Sec.  1.401(a)(9)-6  [Amended]

0
Par. 3. Section 1.401(a)(9)-6 is amended by:
0
1. Removing Q&A-16.
0
2. Redesignating Q&A-17 as Q&A-16.
0
3. Removing the word ``A-16'' and adding ``A-15'' in the newly-
designated A-16.
0
4. Removing the last sentence of the newly-designated A-16.

0
Par. 4. Section 1.403(b)-6 is amended by:
0
1. Revising the last sentence of paragraph (e)(2).
0
2. Adding a new paragraph (e)(8).
    The revisions and addition are as follows:


Sec.  1.403(b)-6  Timing of distributions and benefits.

* * * * *
    (e) Minimum required distributions for eligible plans.
* * * * *
    (2) * * * Consequently, except as otherwise provided in this 
paragraph (e), the distribution rules in section 401(a)(9) are applied 
to section 403(b) contracts in accordance with the provisions in Sec.  
1.408-8 for purposes of determining required minimum distributions.
* * * * *
    (8) Special rule for governmental plans. A section 403(b) contract 
that is part of a governmental plan (within the meaning of section 
414(d)) is treated as having complied with section 401(a)(9) for all 
years to which section 401(a)(9) applies to the contract, if the 
contract complies with a reasonable and good faith interpretation of 
section 401(a)(9).
* * * * *

Linda E. Stiff,
Deputy Commissioner for Services and Enforcement.
    Approved: August 20, 2009.
Michael Mundaca,
Acting Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. E9-21453 Filed 9-4-09; 8:45 am]
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