[Federal Register Volume 62, Number 249 (Tuesday, December 30, 1997)]
[Proposed Rules]
[Pages 67780-67784]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-33393]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[REG-209463-82]
RIN 1545-AV82


Required Distributions From Qualified Plans and Individual 
Retirement Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

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SUMMARY: This document contains amendments to the existing proposed 
regulations under section 401(a)(9) that make changes to the rules that 
apply if a trust is named as a beneficiary of an employee's benefit 
under a retirement plan. These proposed regulations will affect 
administrators of, participants in, and beneficiaries of qualified 
plans, institutions which sponsor and individuals who administer 
individual retirement plans, individuals who use individual retirement 
plans, simplified employee pensions and SIMPLE Savings Plans for 
retirement income and beneficiaries of individual retirement plans; and 
employees for whom amounts are contributed to section 403(b) annuity 
contracts, custodial accounts, or retirement income accounts and 
beneficiaries of such contracts and accounts.

DATES: Written comments and requests for a public hearing must be 
received by March 30, 1998.

ADDRESSES: Send submissions to CC:DOM:CORP:R (REG-209463-82),

[[Page 67781]]

room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand delivered between the 
hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG-209463-82), Courier's 
Desk, Internal Revenue Service, 1111 Constitution Avenue NW., 
Washington, DC. Alternatively, taxpayers may submit comments 
electronically via the Internet by selecting the ``Tax Regs'' option on 
the IRS Home Page, or by submitting comments directly to the IRS 
Internet site at <a href="http://www.irs.ustreas.gov/prod/tax__regs/
comments.html">http://www.irs.ustreas.gov/prod/tax__regs/
comments.html</a>.

FOR FURTHER INFORMATION CONTACT: Thomas Foley at (202) 622-6030 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent 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, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, T:FP, Washington, DC 
20224. Comments on the collection of information should be received by 
March 2, 1998. Comments are specifically requested concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the functions of the Internal Revenue Service, 
including whether the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below);
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized, including through the application of 
automated collection techniques or other forms of information 
technology; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchase of services to provide information.
    The collection of information in this proposed regulation is in 
Question and Answer D-7 of Sec. 1.401(a)(9)-1. This information is 
required for a taxpayer who wants to name a trust and treat the 
underlying beneficiaries of the trust as designated beneficiaries of 
the taxpayer's benefit under a retirement plan or an individual 
retirement plan (``IRA''). The taxpayer must provide a copy of the 
trust instrument or IRA trustee, custodian, or issuer, or provide a 
list of all the beneficiaries of the trust, certify that, to the best 
of the taxpayer's knowledge, this list is correct and complete, and 
agree to provide a copy of the trust instrument upon demand. In 
addition, other related requirements for the beneficiaries of the trust 
to be treated as designated beneficiaries must be satisfied. If the 
trust instrument is amended at any time in the future, the taxpayer 
must, within a reasonable time, provide a copy of each such amendment, 
or provide corrected certifications to the extent that the amendment 
changes the information previously certified. In addition, by the end 
of the ninth month after the death of the taxpayer, the trustee of the 
trust must provide a copy of the trust to the plan administrator or IRA 
trustee, custodian, or issuer, or provide a list of all the 
beneficiaries of the trust, certify that, to the best of the taxpayer's 
knowledge, this list is correct and complete, and agrees to provide a 
copy of the trust instrument upon demand. The collection of information 
is required to obtain a benefit. The likely respondents are individuals 
or households.
    Estimated total annual reporting hours is 333 hours.
    The estimated average burden per respondent is 20 minutes.
    The estimated total number of respondents is 1,000.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    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

    On July 27, 1987, Proposed Regulations (EE-113-82) under sections 
401(a)(9), 403(b), 408, and 4974 of the Internal Revenue Code of 1986 
were published in the Federal Register (52 FR 28070). Those proposed 
regulations provide guidance for complying with the rules relating to 
required distributions from qualified plans, individual retirement 
plans, and section 403(b) annuity contracts, custodial accounts, and 
retirement income accounts. This document contains amendments to 
proposed Sec. 1.401(a)(9)-1 (hereinafter referred to as the Existing 
Proposed Regulations) that was included in EE-113-82. Specifically this 
document contains amendments to Q&As D-5 and Q&A D-6 of the Existing 
Proposed Regulations which prescribe specific requirements that must be 
met when a trust is named as a beneficiary of an employee's benefit 
under a plan, and adds a new Q&A D-7 to the Existing Proposed 
Regulations. Proposed Sec. Sec. 1.408-8 and 1.403(b)-2 (also included 
in EE-113-82) provide that the provisions of proposed Sec. 1.401(a)(9)-
1 generally apply to individual retirement plans, and section 403(b) 
annuity contracts, custodial accounts, and retirement income accounts. 
Accordingly, these amendments and additions also generally apply to 
such plans, contracts, and accounts.
    The amendments and additions to the Existing Proposed Regulations 
in these proposed regulations are issued in response to comments and 
questions received regarding the Existing Proposed Regulations with 
respect to section 401(a)(9). Treasury and the IRS continue to welcome 
additional comments concerning the Existing Proposed Regulations and 
the other sections of EE-113-82.
    As in the case of the Existing Proposed Regulations and the other 
sections of EE-113-82, taxpayers may rely on these proposed regulations 
for guidance pending the issuance of final regulations. If, and to the 
extent, future guidance is more restrictive than the guidance in these 
proposed regulations, the future guidance will be applied without 
retroactive effect.

Explanation of Provisions

Overview

    Section 401(a)(9)(A) provides that, in order for a plan to be 
qualified under section 401(a), distributions of each employee's 
interest in the plan must commence no later than the ``required 
beginning date'' for the employee and must be distributed over a period 
not to exceed the joint lives or joint life expectancy of the employee 
and the employee's designated beneficiary. Section 401(a)(9)(B) 
provides that if distribution does not commence prior to death in 
accordance with section 401(a)(9)(A), distributions of the employee's 
interest must be made within 5 years of the employee's death or, 
generally, commence within one year of the employee's death and be

[[Page 67782]]

made over the life or life expectancy of the designated beneficiary.
    Section 401(a)(9)(E) defines the term ``designated beneficiary'' as 
an individual designated as a beneficiary by the employee. The Existing 
Proposed Regulations provide that, for purposes of section 401(a)(9), 
only individuals may be designated beneficiaries. A beneficiary who is 
not an individual, such as the employee's estate, may not be a 
designated beneficiary for purposes of determining the minimum required 
distribution, but nevertheless may be designated as the employee's 
beneficiary under the plan. If a beneficiary who is not an individual 
is designated to receive an employee's benefit after death, the 
employee is treated as having no designated beneficiary when 
determining the required minimum distribution. In that case, under 
section 401(a)(9), distributions commencing before death must be made 
over the employee's single life or life expectancy and distributions 
commencing after death must be made within 5 years of the employee's 
death.
    However, the Existing Proposed Regulations provide that if a trust 
is named as a beneficiary of an employee's benefit under the plan, the 
underlying beneficiaries of the trust may be treated as designated 
beneficiaries for purposes of section 401(a)(9) if certain requirements 
are satisfied. In response to comments, these proposed regulations 
modify these trust beneficiary requirements as explained below by:
    <bullet> Permitting the designated beneficiary of a revocable trust 
to be treated as the designated beneficiary for purposes of determining 
the minimum distribution under section 401(a)(9), provided that the 
trust becomes irrevocable upon the death of the employee.
    <bullet> Providing relief from the requirement that the plan be 
provided with a copy of the trust document if certain certification 
requirements are met.

Irrevocability of Trust

    The Existing Proposed Regulations generally provide that a trust 
must be irrevocable as of the employee's required beginning date in 
order for the beneficiaries of the trust to be treated as designated 
beneficiaries under the plan for purposes of determining the 
distribution period under section 401(a)(9)(A). Commentators have 
indicated that most trusts established for estate planning purposes and 
designated as the beneficiary of an employee's plan benefits are 
revocable instruments prior to the death of the employee. In response 
to those comments, these proposed regulations provide that a trust 
named as beneficiary of an employee's interest in a retirement plan be 
permitted to be revocable while the employee is alive, provided that it 
becomes irrevocable, by its terms, upon the death of the employee. The 
requirements in the Existing Proposed Regulations that the trust be 
valid under state law (or would be but for the fact that there is no 
corpus) and that the beneficiaries be identifiable from the trust 
instrument are retained.

Information to Plan Administrator

    In order to permit the plan administrator to substantiate that the 
requirements for treating the beneficiaries of the trust as designated 
beneficiaries under the plan are satisfied, the Existing Proposed 
Regulations require that a copy of the trust instrument be provided to 
the plan administrator by the earlier of the required beginning date or 
the date of the employee's death. In response to comments, this 
proposed regulation permits an alternative method of substantiation.
    As under the Existing Proposed Regulations, a copy of the trust 
instrument may be provided to the plan administrator. However, because 
the trust need not be irrevocable, under this method, the employee must 
also agree that if the trust instrument is amended at any time in the 
future, the employee will, within a reasonable time, provide a copy of 
each such amendment.
    Alternatively, the employee may provide a list of all of the 
beneficiaries of the trust (including contingent beneficiaries) with a 
description of the portion to which they are entitled and any 
conditions on their entitlement, and certify that, to the best of the 
employee's knowledge, this list is correct and complete and that the 
other requirements for the beneficiaries of the trust to be treated as 
designated beneficiaries are satisfied. Under the second method, the 
employee must also agree to provide corrected certifications to the 
extent that the amendment changes the information previously certified. 
Finally, the employee must agree to provide a copy of the trust 
instrument to the plan administrator upon demand.
    In addition, these proposed regulations provide that, if the 
minimum required distributions after death are determined by treating 
the beneficiaries of the trust as designated beneficiaries, a final 
certification as to the beneficiaries of the trust instrument must be 
provided to the plan administrator by the end of the ninth month after 
the death of the employee. This rule applies even if a copy of the 
trust instrument were provided to the plan administrator before the 
employee's death. Alternatively, an updated trust instrument may be 
provided.
    The proposed regulations also provide that a plan will not fail to 
satisfy section 401(a)(9) merely because the terms of the actual trust 
instrument are inconsistent with the information in the certifications 
or trust instruments previously provided to the plan administrator if 
the plan administrator reasonably relies on the information provided in 
the certifications or trust instruments. However, the minimum required 
distributions for years after the year in which the discrepancy is 
discovered must be determined based on the actual terms of the trust 
instrument. For those years, the minimum required distribution will be 
determined by treating the beneficiaries of the employee as having been 
changed in the year in which the year the discrepancy was discovered to 
conform to the corrected information and by applying the change in 
beneficiary provisions found under the Existing Proposed Regulations. 
However, for purposes of determining the amount of the excise tax under 
section 4974 (including application of a waiver, if any, for reasonable 
error under section 4974), the minimum required distribution is 
determined for any year based on the actual terms of the trust in 
effect during the year.

Special Analyses

    It has been determined that this notice of proposed rulemaking 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. Moreover, it is hereby 
certified that the regulations in this document will not have a 
significant economic impact on a substantial number of small entities. 
This certification is based on the fact that the reporting burden is 
primarily on the plan participant to supply the information rather than 
on the entity maintaining the retirement plan and the fact that the 
number of participants per plan to whom the burden applies is 
insignificant. Accordingly, a regulatory flexibility analysis under the 
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. 
Pursuant to section 7805(f) of the Internal Revenue Code, this

[[Page 67783]]

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.

Comments and Requests for a Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written comments (preferably a 
signed original and eight (8) copies) or comments transmitted via 
Internet that are submitted timely to the IRS. All comments will be 
available for public inspection and copying. A public hearing may be 
scheduled if requested in writing by a person that timely submits 
written comments. If a public hearing is scheduled, notice of the date, 
time, and place for the hearing will be published in the Federal 
Register.
    Drafting Information: The principal author of these regulations is 
Cheryl Press, 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 in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Previously Proposed Regulations

    Accordingly, 26 CFR part 1 is proposed to be 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 1.401(a)(9)-1 as proposed to be added at 52 FR 
28075, July 27, 1987, is amended by:
    1. Revising Q&A D-5.
    2. Revising Q&A D-6.
    3. Adding Q&A D-7.
    The additions and revisions read as follows:


Sec. 1.401(a)(9)-1  Required distributions from trust and plans.

* * * * *

D. Determination of the Designated Beneficiary

* * * * *
    D-5. Q. If a trust is named as a beneficiary of an employee, will 
the beneficiaries of the trust with respect to the trust's interest in 
the employee's benefit be treated as having been designated as 
beneficiaries of the employee under the plan for purposes of 
determining the distribution period under section 401(a)(9)(A)(ii)?
    A. (a) Pursuant to D-2A of this section, only an individual may be 
a designated beneficiary for purposes of determining the distribution 
period under section 401(a)(9)(A)(ii). Consequently, a trust itself may 
not be the designated beneficiary even though the trust is named as a 
beneficiary. However, if the requirements of paragraph (b) of this D-5A 
are met, distributions made to the trust will be treated as paid to the 
beneficiaries of the trust with respect to the trust's interest in the 
employee's benefit, and the beneficiaries of the trust will be treated 
as having been designated as beneficiaries of the employee under the 
plan for purposes of determining the distribution period under section 
401(a)(9)(A)(ii). If, as of any date on or after the employee's 
required beginning date, a trust is named as a beneficiary of the 
employee and the requirements in paragraph (b) of this D-5A are not 
met, the employee will be treated as not having a designated 
beneficiary under the plan for purposes of section 401(a)(9)(A)(ii). 
Consequently, for calendar years beginning after that date, 
distribution must be made over the employee's life (or over the period 
which would have been the employee's remaining life expectancy 
determined as if no beneficiary had been designated as of the 
employee's required beginning date).
    (b) The requirements of this paragraph (b) are met if, as of the 
later of the date on which the trust is named as a beneficiary of the 
employee, or the employee's required beginning date, and as of all 
subsequent periods during which the trust is named as a beneficiary, 
the following requirements are met:
    (1) The trust is a valid trust under state law, or would be but for 
the fact that there is no corpus.
    (2) The trust is irrevocable or will, by its terms, become 
irrevocable upon the death of the employee.
    (3) The beneficiaries of the trust who are beneficiaries with 
respect to the trust's interest in the employee's benefit are 
identifiable from the trust instrument within the meaning of D-2 of 
this section.
    (4) The documentation described in D-7 of this section has been 
provided to the plan administrator.
    (c) In the case of payments to a trust having more than one 
beneficiary, see E-5 of this section for the rules for determining the 
designated beneficiary whose life expectancy will be used to determine 
the distribution period. If the beneficiary of the trust named as 
beneficiary is another trust, the beneficiaries of the other trust will 
be treated as having been designated as beneficiaries of the employee 
under the plan for purposes of determining the distribution period 
under section 401(a)(9)(A)(ii), provided that the requirements of 
paragraph (b) of this D-5A are satisfied with respect to such other 
trust in addition to the trust named as beneficiary.
    D-6. Q. If a trust is named as a beneficiary of an employee, will 
the beneficiaries of the trust with respect to the trust's interest in 
the employee's benefit be treated as designated beneficiaries under the 
plan with respect to the employee for purposes of determining the 
distribution period under section 401(a)(9)(B)(iii) and (iv)?
    A. (a) If a trust is named as a beneficiary of an employee and the 
requirements of paragraph (b) of D-5A of this section are satisfied as 
of the date of the employee's death or, in the case of the 
documentation described in D-7 of this section, by the end of the ninth 
month beginning after the employee's date of death, then distributions 
to the trust for purposes of section 401(a)(9) will be treated as being 
paid to the appropriate beneficiary of the trust with respect to the 
trust's interest in the employee's benefit, and all beneficiaries of 
the trust with respect to the trust's interest in the employee's 
benefit will be treated as designated beneficiaries of the employee 
under the plan for purposes of determining the distribution period 
under section 401(a)(9)(B)(iii) and (iv). If the beneficiary of the 
trust named as beneficiary is another trust, the beneficiaries of the 
other trust will be treated as having been designated as beneficiaries 
of the employee under the plan for purposes of determining the 
distribution period under section 401(a)(9)(B)(iii) and (iv), provided 
that the requirements of paragraph (b) of D-5A of this section are 
satisfied with respect to such other trust in addition to the trust 
named as beneficiary. If a trust is named as a beneficiary of an 
employee and if the requirements of paragraph (b) of D-5A of this 
section are not satisfied as of the dates specified in the first 
sentence of this paragraph, the employee will be treated as not having 
a designated beneficiary under the plan. Consequently, distribution 
must be made in accordance with the five-year rule in section 
401(a)(9)(B)(ii).
    (b) The rules of D-5 of this section and this D-6 also apply for 
purposes of applying the provisions of section 401(a)(9)(B)(iv)(II) if 
a trust is named as a beneficiary of the employee's surviving spouse. 
In the case of

[[Page 67784]]

payments to a trust having more than one beneficiary, see E-5 of this 
section for the rules for determining the designated beneficiary whose 
life expectancy will be used to determine the distribution period.
    D-7. Q. If a trust is named as a beneficiary of an employee, what 
documentation must be provided to the plan administrator so that the 
beneficiaries of the trust who are beneficiaries with respect to the 
trust's interest in the employee's benefit are identifiable to the plan 
administrator?
    A. (a) Required distributions commencing before death. In order to 
satisfy the requirement of paragraph (b)(4) of D-5A of this section for 
distributions required under section 401(a)(9) to commence before the 
death of an employee, the employee must comply with either paragraph 
(a)(1) or (2) of this D-7A:
    (1) The employee provides to the plan administrator a copy of the 
trust instrument and agrees that if the trust instrument is amended at 
any time in the future, the employee will, within a reasonable time, 
provide to the plan administrator a copy of each such amendment.
    (2) The employee--
    (i) Provides to the plan administrator a list of all of the 
beneficiaries of the trust (including contingent and remainderman 
beneficiaries with a description of the conditions on their 
entitlement);
    (ii) Certifies that, to the best of the employee's knowledge, this 
list is correct and complete and that the requirements of paragraphs 
(b)(1), (2), and (3) of D-5A of this section are satisfied;
    (iii) Agrees to provide corrected certifications to the extent that 
an amendment changes any information previously certified; and
    (iv) Agrees to provide a copy of the trust instrument to the plan 
administrator upon demand.
    (b) Required distributions after death. In order to satisfy the 
documentation requirement of this D-7 for required distributions after 
death, by the end of the ninth month beginning after the death of the 
employee, the trustee of the trust must either--
    (1) Provide the plan administrator with a final list of all of the 
beneficiaries of the trust (including contingent and remainderman 
beneficiaries with a description of the conditions on their 
entitlement) as of the date of death; certify that, to the best of the 
trustee's knowledge, this list is correct and complete and that the 
requirements of paragraph (b)(1), (2), and (3) of D-5A of this section 
are satisfied as of the date of death; and agree to provide a copy of 
the trust instrument to the plan administrator upon demand; or
    (2) Provide the plan administrator with a copy of the actual trust 
document for the trust that is named as a beneficiary of the employee 
under the plan as of the employee's date of death.
    (c) Relief for discrepancy between trust instrument and employee 
certifications or earlier trust instruments. (1) If required 
distributions are determined based on the information provided to the 
plan administrator in certifications or trust instruments described in 
paragraph (a)(1), (a)(2) or (b) of this D-7A, a plan will not fail to 
satisfy section 401(a)(9) merely because the actual terms of the trust 
instrument are inconsistent with the information in those 
certifications or trust instruments previously provided to the plan 
administrator, but only if the plan administrator reasonably relied on 
the information provided and the minimum required distributions for 
calendar years after the calendar year in which the discrepancy is 
discovered are determined based on the actual terms of the trust 
instrument. For purposes of determining whether the plan satisfies 
section 401(a)(9) for calendar years after the calendar year in which 
the discrepancy is discovered, if the actual beneficiaries under the 
trust instrument are different from the beneficiaries previously 
certified or listed in the trust instrument previously provided to the 
plan administrator, or the trust instrument specifying the actual 
beneficiaries does not satisfy the other requirements of paragraph (b) 
of D-5A of this section, the minimum required distribution will be 
determined by treating the beneficiaries of the employee as having been 
changed in the calendar year in which the discrepancy was discovered to 
conform to the corrected information and by applying the change in 
beneficiary provisions of E-5 of this section.
    (2) For purposes of determining the amount of the excise tax under 
section 4974, the minimum required distribution is determined for any 
year based on the actual terms of the trust in effect during the year.
* * * * *
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
[FR Doc. 97-33393 Filed 12-29-97; 8:45 am]
BILLING CODE 4830-01-U