Federal Register / Vol. 63, No. 108 / Friday, June 5, 1998 /Rules and Regulations 30621

corrected to read as follows: ‘‘DATES:

The regulation published at 63 FR

25764 is effective February 2, 1999.

Submit written comments by July 27,

1998. If no timely significant adverse

comments are received, the agency will

publish a document in the Federal

Register no later than August 6, 1998,

confirming the effective date of the

direct final rule. If timely significant

adverse comments are received, the

agency will publish a document of

significant adverse comment in the

Federal Register withdrawing this

direct final rule no later than August 6,

1998.’’

Dated: May 28, 1998.

William K. Hubbard,

Associate Commissioner for Policy

Coordination.

[FR Doc. 98–14718 Filed 6–4–98; 8:45 am]

BILLING CODE 4160–01–F

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 602

[TD 8769]

RIN 1545–AV26

Permitted Elimination of Preretirement

Optional Forms of Benefit

AGENCY: Internal Revenue Service (IRS),

Treasury.

ACTION: Final regulations.

SUMMARY: This document contains final

regulations that permit an amendment

to a qualified plan or other employee

pension benefit plan that eliminates

plan provisions for benefit distributions

before retirement but after age 701⁄2.

These regulations affect employers that

maintain qualified plans and other

employee pension benefit plans, plan

administrators of these plans and

participants in these plans.

EFFECTIVE DATE: These regulations are

effective June 5, 1998.

FOR FURTHER INFORMATION CONTACT:

Thomas Foley, (202) 622–6050 (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 of 1995 (44 U.S.C.

3507(d)) under the control number

1545–1545. The collection of

information in these final regulations is

in § 1.411(d)–4. Responses to this

collection of information are required in

order to obtain a benefit. Specifically,

this information is required for a

taxpayer who wants to amend a

qualified plan to eliminate certain

preretirement optional forms of benefit.

This information will be used to

determine whether taxpayers have

amended a qualified plan.

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.

The estimated average burden per

recordkeeper for master and prototype

plan employers is 10 minutes. The

estimated average burden per

recordkeeper for master and prototype

plan sponsors is 30 minutes. The

estimated average burden per

recordkeeper for employers with

individually designed plans is 30

minutes.

Comments concerning the accuracy of

this burden estimate and suggestions for

reducing this burden should be sent to

the Internal Revenue Service, Attn: IRS

Clearance Officer, T:FS:FP, Washington,

D.C. 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, D.C.

20503.

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(d) of the

Internal Revenue Code of 1986. The

final regulations permit taxpayers to

amend qualified plans to eliminate plan

provisions for benefit distributions

before retirement but after age 701⁄2, if

certain conditions are satisfied.

Section 411(d)(6) 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. Under section 411(d)(6)(B),

a plan amendment that eliminates an

optional form of benefit will be treated

as reducing accrued benefits to the

extent that the amendment applies to

benefits accrued as of the later of the

adoption date or the effective date of the

amendment. However, section

411(d)(6)(B) also permits the Secretary

to provide in regulations that this rule

will not apply to an amendment that

eliminates an optional form of benefit.

Section 401(a)(9) provides that, in

order for a plan to be qualified under

section 401(a), distributions from the

plan must commence no later than the

‘‘required beginning date.’’ Prior to

1997, section 401(a)(9)(C) generally

provided that the required beginning

date is April 1 following the calendar

year in which the employee attains age

701⁄2. Consequently, in order to satisfy

section 401(a)(9), qualified plans, other

than certain church and governmental

plans, have provided for distributions to

commence no later than April 1

following the calendar year that an

employee attains age 701⁄2. These

distributions commence without regard

to whether the employee has retired

from employment with the employer

maintaining the plan.

Section 1404 of the Small Business

Job Protection Act of 1996, Public Law

104–188 (SBJPA), amended the

definition of required beginning date

that applies to an employee who is not

a 5-percent owner. Section

401(a)(9)(C)(i), as amended, provides

that, in the case of such an employee,

the required beginning date is April 1 of

the calendar year following the later of

the calendar year in which the

employee attains age 701⁄2 or the

calendar year in which the employee

retires. Accordingly, except in the case

of 5-percent owners, a plan is no longer

required to provide for distributions that

commence prior to retirement in order

to satisfy section 401(a)(9).

The right to commence benefit

distributions in any form at a particular

time is an optional form of benefit

within the meaning of section

411(d)(6)(B) and § 1.411(d)–4, Q&A–

1(b). In enacting section 1404 of the

SBJPA, Congress did not alter the

application of section 411(d)(6). Thus,

except to the extent authorized by

regulations, a plan amendment that

eliminates the right to commence

preretirement benefit distributions in a

plan after age 701⁄2 (or restricts the right

by adding an additional condition)

violates section 411(d)(6) if the

amendment applies to benefits accrued

as of the later of the adoption or

effective date of the amendment.

On July 2, 1997, a notice of proposed

rulemaking under section 411(d)(6) was

published in the Federal Register (62

FR 35752). The proposed regulations

would allow amendment of qualified

plans to eliminate the right to

commence preretirement benefit

distributions after age 701⁄2, as required

under section 401(a)(9) before its

amendment by the SBJPA. On October
30622 Federal Register / Vol. 63, No. 108 / Friday, June 5, 1998 /Rules and Regulations

28, 1997, a public hearing was held on

the proposed regulations. In general,

most of the comments received with

respect to the proposed regulations did

not relate to the proposed amendments

to the regulations under section

411(d)(6), but rather to the other issues

related to the SBJPA amendment to

section 401(a)(9). Many of those issues

are addressed in Notice 97–75 (1997–51

I.R.B. 18). Those comments that

addressed the amendments to the

proposed regulations under section

411(d)(6) were generally favorable.

Thus, after consideration of the

comments received, the final regulations

retain the structure and substance of the

proposed regulations, with the changes

or clarifications discussed below.

Overview

1. Permitted Elimination of

Preretirement Distributions After Age

701⁄2

The legislative history to section 1404

of the SBJPA indicates that the reason

for amending the definition of required

beginning date was that it is

inappropriate to require all participants

to commence distributions by age 701⁄2

without regard to whether the

participant is still employed by the

employer. Because section 1404 did not

alter the application of section 411(d)(6)

to plan provisions allowing or requiring

preretirement distributions after age

701⁄2, an employer’s choices for

amending its plan to implement the

SBJPA change to the definition of

required beginning date would be

limited if the IRS and Treasury did not

grant relief from section 411(d)(6).

Under previously-issued

administrative guidance, one approach

that is available to employers is to give

employees the option of commencing

distributions at age 701⁄2 or deferring

commencement until after retirement.

See Announcement 97–24 (1997–11

I.R.B. 24) and Revenue Procedure 97–41

(1997–33 I.R.B. 51). Another alternative

available to employers is to amend the

plan to eliminate the right to

preretirement distributions solely with

respect to future accruals. However,

under this second approach, each

current participant would retain the

right to receive preretirement

distributions after age 701⁄2 with respect

to a portion of his or her accrued

benefit.

The IRS and Treasury recognize the

potential complexity of administering

plans (particularly defined benefit

plans) that adopt either of these

approaches. In addition, an employer

may not have chosen voluntarily to offer

preretirement distributions to

employees who have attained age 701⁄2

but instead may have included these

provisions in its plan solely to comply

with section 401(a)(9) prior to its

amendment by the SBJPA. Therefore,

the proposed regulations set forth a

proposal to provide relief from section

411(d)(6) for certain plan amendments

that eliminate preretirement

distributions commencing at age 701⁄2.

After consideration of the comments

received with respect to the proposed

regulations, the final regulations

provide this relief using the same

approach.

2. Conditions on the Relief From Section

411(d)(6)

a. Protection for Employees Who Are

Near Age 701⁄2

Under the regulations, an amendment

to eliminate a preretirement age 701⁄2

distribution option is permitted to apply

only to benefits with respect to

employees who attain age 701⁄2 in or

after a calendar year, specified in the

amendment, that begins after the later of

December 31, 1998, or the adoption date

of the amendment. The relief from

section 411(d)(6) is limited to

distributions to employees who attain

age 701⁄2 after calendar year 1998

because employees who were near age

701⁄2 at the time of enactment of the

SBJPA may have had an expectation of

receiving preretirement distributions in

the near future and may have made

plans that took into account these

expected distributions.

b. Optional Forms of Benefit for

Participants Retiring After Age 701⁄2

A plan using this relief generally may

not preclude an employee who retires

after the calendar year in which the

employee attains age 701⁄2 from

receiving an optional form of benefit

that would have been available if the

employee had retired in the calendar

year in which the employee attained age

701⁄2. Two of the commentators on the

proposed regulations requested

clarification that this requirement does

not impose special additional

restrictions with respect to employees

over age 701⁄2 that would require plan

sponsors to retain all plan options in

effect during the year any employee

attained age 701⁄2. In response to these

comments, the final regulations clarify

that no such special additional

restrictions are being imposed. Thus, to

the extent a section 411(d)(6) protected

benefit may otherwise be eliminated or

reduced under § 1.411(d)–4, that

protected benefit can be reduced or

eliminated for all employees without

violating section 411(d)(6), even if that

benefit would have been available to an

employee who retired in the calendar

year in which the employee attained age

701⁄2.

c. Timing of Plan Amendment

An amendment to eliminate a

preretirement age 701⁄2 distribution

option must be adopted no later than

the last day of the remedial amendment

period that applies to the plan for

changes under the SBJPA. The relief

provided is available only to employers

that adopt the amendment within this

specified time period because the relief

is intended to simplify the

implementation of section 401(a)(9), as

amended by the SBJPA, for employers

that do not voluntarily provide

preretirement distributions for an

extended period after the enactment of

the SBJPA.

The IRS and Treasury have

determined that it is appropriate to

provide an extension of the period for

collectively bargained plans to

implement an amendment permitted by

these regulations. This was suggested by

a commentator who noted that it might

not be possible to amend a collectively

bargained plan until the expiration of all

applicable collective bargaining

agreements that are in effect when the

final regulations are issued.

Accordingly, under the final

regulations, § 1.411(d)–4, Q&A–10(b)(3)

has been amended so that, in the case

of a plan maintained pursuant to one or

more collective bargaining agreements

between employee representatives and

one or more employers ratified before

September 3, 1998, the amendment

deadline is extended to the last day of

the twelfth month beginning after the

date on which the last of such collective

bargaining agreements terminates

(determined without regard to any

extensions on or after September 3,

1998), if later than the last day of the

remedial amendment period for the plan

for changes under the SBJPA.

3. Circumstances Under Which No

Relief Is Required

Many employers do not need relief

under section 411(d)(6) in order to

implement the SBJPA change in the

definition of required beginning date in

their plans. The regulations include an

example of such a plan, a profit-sharing

plan that permits an employee to elect

distribution after age 591⁄2 at any time

and in any amount. The example

illustrates that this plan may be

amended to implement the SBJPA

change in the definition of required

beginning date without violating section

411(d)(6). In this example, the section

411(d)(6) relief in these regulations is
Federal Register / Vol. 63, No. 108 / Friday, June 5, 1998 /Rules and Regulations 30623

not required because the optional forms

of benefit in the plan that reflect the preSBJPA mandatory distribution

requirements of section 401(a)(9) are

encompassed by the optional forms of

benefit provided under the general

elective distribution provisions of the

plan. The right to commence

distributions at age 701⁄2 continues to be

available under the plan even after the

plan is amended to implement the

SBJPA change in the required beginning

date.

Effective Date

These regulations are effective June 5,

1998.

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. Further, it is hereby

certified, pursuant to sections 603(a)

and 605(b) of the Regulatory Flexibility

Act, that the collection of information in

these regulations does not have a

significant economic impact on a

substantial number of small entities.

The burden imposed by the collection of

information is the burden of amending

a plan to modify the provisions

reflecting section 401(a)(9). The cost of

the amendment varies depending upon

whether the small entity involved

maintains an individually designed plan

or uses a master or prototype plan. For

an individually designed plan, the small

entity maintaining the plan will be

responsible for arranging to have the

amendment made. Most small entities

with individually designed plans will

have the amendment done by a skilled

outside service provider, such as a

consulting firm or law firm. The time

required to make such an amendment is

estimated at 30 minutes, which is not a

significant economic impact, even for a

very small entity. Moreover, most very

small entities that maintain a qualified

plan use a master or prototype plan. For

master and prototype plans, the plan

sponsor drafts a single amendment for

all of the employers participating in the

plan. The average time required for the

amendment per employer participating

in a master or prototype plan is

estimated to be 10 minutes, which

certainly is not a substantial economic

impact. Therefore, 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, 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 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

26 CFR Part 1

Income taxes, Reporting and

recordkeeping requirements.

26 CFR Part 602

Reporting and recordkeeping

requirements.

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 is amended by revising the

entry for § 1.411(d)–4 to read as follows:

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

1.411(d)–4 also issued under 26 U.S.C.

411(d)(6). * * *

Par. 2. Section 1.411(d)–4 is amended

by adding Q&A–10 to read as follows:

§ 1.411(d)–4 Section 411(d)(6) protected

benefits.

* * * * *

Q–10. If a plan provides for an age

701⁄2 distribution option that

commences prior to retirement from

employment with the employer

maintaining the plan, to what extent

may the plan be amended to eliminate

this distribution option?

A–10. (a) In general. The right to

commence benefit distributions in a

particular form and at a particular time

prior to retirement from employment

with the employer maintaining the plan

is a separate optional form of benefit

within the meaning of section

411(d)(6)(B) and Q&A–1 of this section,

even if the plan provision creating this

right was included in the plan solely to

comply with section 401(a)(9), as in

effect for years before January 1, 1997.

Therefore, except as otherwise provided

in paragraph (b) of this Q&A–10 or any

other Q&A in this section, a plan

amendment violates section 411(d)(6) if

it eliminates an age 701⁄2 distribution

option (within the meaning of paragraph

(c) of this Q&A–10) to the extent that it

applies to benefits accrued as of the

later of the adoption date or effective

date of the amendment.

(b) Permitted elimination of age 701⁄2

distribution option. An amendment of a

plan will not violate the requirements of

section 411(d)(6) merely because the

amendment eliminates an age 701⁄2

distribution option to the extent that the

option provides for distribution to an

employee prior to retirement from

employment with the employer

maintaining the plan, provided that—

(1) The amendment eliminating this

optional form of benefit applies only to

benefits with respect to employees who

attain age 701⁄2 in or after a calendar

year, specified in the amendment, that

begins after the later of—

(i) December 31, 1998; or

(ii) The adoption date of the

amendment;

(2) The plan does not, except to the

extent required by section 401(a)(9),

preclude an employee who retires after

the calendar year in which the

employee attains age 701⁄2 from

receiving benefits in any of the same

optional forms of benefit (except for the

difference in the timing of the

commencement of payments) that

would have been available had the

employee retired in the calendar year in

which the employee attained age 701⁄2;

and

(3) The amendment is adopted no

later than—

(i) The last day of the remedial

amendment period that applies to the

plan for changes under the Small

Business Job Protection Act of 1996 (110

Stat. 1755); or

(ii) Solely in the case of a plan

maintained pursuant to one or more

collective bargaining agreements

between employee representatives and

one or more employers ratified before

September 3, 1998, the last day of the

twelfth month beginning after the date

on which the last of such collective

bargaining agreements terminates

(determined without regard to any

extension thereof on or after September

3, 1998), if later than the date described

in paragraph (b)(3)(i) of this Q&A–10.

For purposes of this paragraph (b)(3)(ii),

the rules of § 1.410(b)–10(a)(2) apply for

purposes of determining whether a plan

is maintained pursuant to one or more

collective bargaining agreements, except

that September 3, 1998 is substituted for

March 1, 1986, as the date before which

the collective bargaining agreements

must be ratified.

(c) Age 701⁄2 distribution option. For

purposes of this Q&A–10, an age 701⁄2

distribution option is an optional form

of benefit under which benefits payable

in a particular distribution form

(including any modifications that may
30624 Federal Register / Vol. 63, No. 108 / Friday, June 5, 1998 /Rules and Regulations

be elected after benefit commencement)

commence at a time during the period

that begins on or after January 1 of the

calendar year in which an employee

attains age 701⁄2 and ends April 1 of the

immediately following calendar year.

(d) Examples. The provisions of this

Q&A–10 are illustrated by the following

examples:

Example 1. Plan A, a defined benefit plan,

provides each participant with a qualified

joint and survivor annuity (QJSA) that is

available at any time after the later of age 65

or retirement. However, in accordance with

section 401(a)(9) as in effect prior to January

1, 1997, Plan A provides that if an employee

does not retire by the end of the calendar

year in which the employee attains age 701⁄2,

then the QJSA commences on the following

April 1. On October 1, 1998, Plan A is

amended to provide that, for an employee

who is not a 5-percent owner and who attains

age 701⁄2 after 1998, benefits may not

commence before the employee retires but

must commence no later than the April 1

following the later of the calendar year in

which the employee retires or the calendar

year in which the employee attains age 701⁄2.

This amendment satisfies this Q&A–10 and

does not violate section 411(d)(6).

Example 2. Plan B, a money purchase

pension plan, provides each participant with

a choice of a QJSA or a single sum

distribution commencing at any time after

the later of age 65 or retirement. In addition,

in accordance with section 401(a)(9) as in

effect prior to January 1, 1997, Plan B

provides that benefits will commence in the

form of a QJSA on April 1 following the

calendar year in which the employee attains

age 701⁄2, except that, with spousal consent,

a participant may elect to receive annual

installment payments equal to the minimum

amount necessary to satisfy section 401(a)(9)

(calculated in accordance with a method

specified in the plan) until retirement, at

which time a participant may choose

between a QJSA and a single sum

distribution (with spousal consent). On June

30, 1998, Plan B is amended to provide that,

for an employee who is not a 5-percent

owner and who attains age 701⁄2 after 1998,

benefits may not commence prior to

retirement but benefits must commence no

later than April 1 after the later of the

calendar year in which the employee retires

or the calendar year in which the employee

attains age 701⁄2. The amendment further

provides that the option described above to

receive annual installment payments prior to

retirement will not be available under the

plan to an employee who is not a 5-percent

owner and who attains age 701⁄2 after 1998.

This amendment satisfies this Q&A–10 and

does not violate section 411(d)(6).

Example 3. Plan C, a profit-sharing plan,

contains two distribution provisions. Under

the first provision, in any year after an

employee attains age 591⁄2, the employee may

elect a distribution of any specified amount

not exceeding the balance of the employee’s

account. In addition, the plan provides a

section 401(a)(9) override provision under

which, if, during any year following the year

that the employee attains age 701⁄2, the

employee does not elect an amount at least

equal to the minimum amount necessary to

satisfy section 401(a)(9) (calculated in

accordance with a method specified in the

plan), Plan C will distribute the difference by

December 31 of that year (or for the year the

employee attains age 701⁄2, by April 1 of the

following year). On December 31, 1996, Plan

C is amended to provide that, for an

employee other than an employee who is a

5-percent owner in the year the employee

attains age 701⁄2, in applying the section

401(a)(9) override provision, the later of the

year of retirement or year of attainment of age

701⁄2, is substituted for the year of attainment

of age 701⁄2. After the amendment, Plan C still

permits each employee to elect to receive the

same amount as was available before the

amendment. Because this amendment does

not eliminate an optional form of benefit, the

amendment does not violate section

411(d)(6). Accordingly, the amendment is not

required to satisfy the conditions of

paragraph (b) of this Q&A–10.

(e) Effective date. This Q&A–10

applies to amendments adopted and

effective after June 5, 1998.

PART 602—OMB CONTROL NUMBERS

UNDER THE PAPERWORK

REDUCTION ACT

Par. 3. The authority citation for part

602 continues to read as follows:

Authority: 26 U.S.C. 7805.

Par. 4. In § 602.101, paragraph (c) is

amended by adding an entry in

numerical order to the table to read as

follows:

§ 602.101 OMB control numbers.

* * * * *

(c) * * *

CFR part or section where

identified and described

Current

OMB control No.

* * * * *

1.411(d)–4 ................................. 1545–1545

* * * * *

Michael P. Dolan,

Deputy Commissioner of Internal Revenue.

Approved: May 11, 1998.

Donald C. Lubick,

Assistant Secretary of the Treasury.

[FR Doc. 98–14875 Filed 6–4–98; 8:45 am]

BILLING CODE 4830–01–U

EQUAL EMPLOYMENT OPPORTUNITY

COMMISSION

29 CFR Part 1625

Waiver of Rights and Claims Under the

Age Discrimination in Employment Act

(ADEA)

AGENCY: Equal Employment

Opportunity Commission.

ACTION: Final rule.

SUMMARY: EEOC is publishing this final

regulation on agreements waiving rights

and claims under the Age

Discrimination in Employment Act, in

order to set forth procedures for

complying with the Older Workers

Benefit Protection Act of 1990.

DATES: This final regulation will be

effective on July 6, 1998.

FOR FURTHER INFORMATION CONTACT:

Joseph N. Cleary, Assistant Legal

Counsel, or Paul E. Boymel, Senior

Attorney-Advisor, Office of Legal

Counsel, 202–663–4692 (voice), 202–

663–7026 (TDD).

SUPPLEMENTARY INFORMATION:

A. History

Congress amended the ADEA by

enacting the Older Workers Benefit

Protection Act of 1990 (OWBPA), Pub.

L. 101–433, 104 Stat. 983 (1990), to

clarify the prohibitions against

discrimination on the basis of age. In

Title II of OWBPA, Congress addressed

waivers of rights and claims under the

ADEA, amending section 7 of the ADEA

by adding a new subsection (f), 29

U.S.C. 626(f).

Section 7(f)(1) provides that ‘‘an

individual may not waive any right or

claim under the [ADEA] unless the

waiver is knowing and voluntary.’’

Section 7(f) sets out the minimum

criteria for determining whether a

waiver is knowing and voluntary.

In light of the OWBPA amendments,

EEOC published an Advance Notice of

Proposed Rulemaking (ANPRM) in the

Federal Register, 57 FR 10626 (March

27, 1992), seeking information from the

public on various issues under both

titles of OWBPA. In response to the

ANPRM, EEOC received approximately

40 comments, many of which presented

detailed analyses of Title II issues,

requesting EEOC to provide formal

guidance on waivers of rights and

claims under the ADEA. Since the

publication of the ANPRM, EEOC also

has received numerous written and

telephone inquiries requesting

information on how to comply with

Title II.

On August 31, 1995, EEOC

announced in the Federal Register, 60