Final regulations respecting partial annuity distribution options under defined benefit plans should specify that the addition of rules for bifurcated benefits does not void approaches for handling these benefits in previous periods.
The American Society of Pension Professionals and Actuaries and the ASPPA College of Pension Actuaries issued this recommendation in comments on the IRS’ and Treasury Department’s proposed modifications to minimum present value regulations for partial annuity distribution options under defined benefit plans. The proposed changes to Section 417(e) of the Internal Revenue Code were issued by the IRS and Treasury Dept. on February 3rd.
● Multiple annuity starting dates—Final regulations should confirm that similar rules apply to the case of bifurcated benefits with different annuity starting dates.
● Grandfathered lump sum distribution forms—Final regulations should include an example demonstrating the regulation is intended to apply to situations in which the reason for the partial lump sum distribution is the grandfathering of the option in connection with an amendment eliminating the optional form of distribution (as contrasted with a service-based change in benefit structure).
The example, the press statement adds, should illustrate the principal supported by the proposed rule that a subsidy provided by the partial lump sum can have a non-proportional effect on the participant’s remaining accrued benefit. In addition, the example should emphasize that the partial distribution rule applies where the remainder benefit is paid at a different date.
● Conforming changes—Final regulations should incorporate modifications to the qualified joint and survivor annuity (QJSA) notice and election rules and the relative value regulation confirming that separate notices, disclosures and elections are permitted for the separate portions of bifurcated benefits.
● Other forms of payment—Final regulations should indicate that similar rules apply for other forms of benefits that are subject to IRC section 417(e), such as period certain annuities.