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IRS Proposes Regs on Minimum Present Value Requirements for DB Plan Distributions

The IRS has issued proposed regulations that would update the minimum present value requirements for defined benefit plan distributions. The proposed regulations were published in the Federal Register of Nov. 25, 2016.

The proposed regulations provide guidance relating to the minimum present value requirements applicable to certain DB plans. They would provide guidance on changes made by the Pension Protection Act of 2006 (PPA) and would provide other modifications to these rules as well. These regulations would affect plan participants, beneficiaries, sponsors and administrators.

These proposed regulations would amend final regulations (TD 9783) under Internal Revenue Code Section 417(e) that permit DB plans to simplify the treatment of certain optional benefit forms that are paid partly as an annuity and partly in a more accelerated form and that were published in the Federal Register on Sept. 9, 2016. These final regulations issued under Section 417(e) concern the minimum present value requirements of Section 417(e)(3) in several areas. Specifically, the proposed regulations would update the regulations for changes made by the PPA and would eliminate certain obsolete provisions. The proposed regulations also contain other clarifying changes.

Updates To Reflect Statutory and Regulatory Changes

The proposed regulations would do the following:

  • update the existing regulatory provisions to reflect the statutory changes the PPA made, including the new interest rates and mortality tables set forth in Section 417(e)(3) and the exception from the valuation rules for certain applicable DB plans set forth in Section 411(a)(13);

  • clarify that the interest rates the IRS published as modified by the PPA are to be used without further adjustment;

  • eliminate obsolete provisions of the regulations relating to the transition from pre-1995 law to the interest rates and mortality assumptions provided by GATT; and

  • make conforming changes to reflect the final regulations under Section 417(e) that permit DB plans to simplify the treatment of certain optional forms of benefit that are paid partly as an annuity and partly in a more accelerated form.

Clarifying Changes

Treatment of Preretirement Mortality. The proposed regulations would include rules relating to the treatment of preretirement mortality discounts in determining the minimum present value of accrued benefits under the regulations to address the issue raised by West v. AK Steel Corporation Retirement Accumulation Pension Plan, 484 F.3d 395 (6th Cir. 2007) and Berger v. Xerox Corporation Retirement Income Guarantee Plan, 338 F.3d 755 (7th Cir. 2003): namely, whether a plan that provides a death benefit equal in value to the accrued benefit may apply a preretirement mortality discount for the probability of death when determining the amount of a single-sum distribution.

Social Security Level Income Options. The proposed regulations contain an example that illustrates that because the periodic payments under a Social Security level income option decrease during the participant’s lifetime and that is not because an ancillary Social Security supplement has ceased, Treas. Reg. §1.417(e)-1(d)(6) does not provide an exception from the minimum present value requirements of Section 417(e)(3) for such a distribution.

Application of Required Assumptions to the Accrued Benefit. The proposed regulations would clarify the scope of the rule of Treas. Reg. §1.417(e)-1(d)(1) under which the present value of any optional form of benefit cannot be less than the present value of the normal retirement benefit (with both values determined using the applicable interest rate and the applicable mortality table). The proposed regulations would require that the present value of any optional form of benefit cannot be less than the present value of the accrued benefit payable at normal retirement age, and would provide an exception for an optional form of benefit payable after normal retirement age to the extent that a suspension of benefits applies under Section 411(a)(3)(B).

Effective/Applicability Dates


The changes under the proposed regulations are proposed to apply to distributions with annuity starting dates in plan years beginning on or after the date regulations that finalize these proposed regulations are published in the Federal Register. Before this applicability date, taxpayers must continue to apply existing regulations relating to Section 417(e), modified to reflect the relevant statutory provisions during the applicable period (and guidance of general applicability relating to those statutory provisions, such as Revenue Ruling 2007-67).

Comments Invited

The IRS has invited comments on the proposed regulations. It will accept comments through Feb. 23, 2017.

Written comments should be sent to: CC:PA:LPD:PR (REG-107424-12), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.

Submissions may be hand-delivered Monday through Friday, 8:00 a.m.- 4 p.m. to: CC:PA:LPD:PR (REG-107424-12), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW, Washington, DC.

Submissions can be sent electronically, via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-107424-12).

Public Hearing

The IRS will be holding a public hearing on the proposed regulations on March 7, 2017 in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue NW, Washington, DC. The IRS must receive outlines of topics to be discussed at the public hearing by Feb. 23, 2017.