4.72.10  Single-Sum Distributions

Manual Transmittal

September 17, 2014

Purpose

(1) This transmits revised IRM 4.72.10, Employee Plans Technical Guidance, Single-Sum Distribution.

Background

This IRM provides guidance with respect to defined benefit plans that provide single-sum distributions or other benefits that are subject to IRC 417(e). This guidance addresses the determination of the actuarial factors required for use under IRC 417(e) and illustrates the required calculations.

Material Changes

(1) IRM 4.72.10 is revised to incorporate the Pension Protection Act of 2006, Pub. Law 109-280 (PPA ’06), the Worker, Retiree, and Employer Recovery Act of 2008, Pub. Law 110-458 (WRERA) and the Moving Ahead for Progress in the 21st Century Act, Pub. Law 112-141 (MAP-21).

(2) IRM 4.72.10.3, Actuarial Factors under IRC 417(e)(3), is retitled Minimum Present Value of Accrued Benefits under IRC 417(e)(3).

(3) IRM 4.72.10.3.4, Finding the 30-year Treasury rate, is deleted as the information is obsolete.

(4) IRM 4.72.10.3.6, Special Rule for Hybird Plans, is added.

Effect on Other Documents

IRM 4.72.10, dated May 17, 2002, is superseded.

Audience

TE/GE (Employee Plans)

Effective Date

(09-17-2014)

Robert Choi
Director, Employee Plans
Tax Exempt and Government Entities

4.72.10.1  (09-17-2014)
Overview and Scope

  1. Guidance is provided with respect to defined benefit plans that provide single-sum distributions or other benefits that are subject to IRC 417(e). This guidance addresses the determination of the actuarial factors required for use under IRC 417(e) and provides numerical illustrations of the required calculations. Related issues arising under IRC 411(d)(6) also are addressed.

  2. This guidance does not apply with respect to any distribution paid in the form of an annual benefit which does not decrease during the life of the participant (or, in the case of a qualified pre-retirement survivor annuity, during the life of the spouse), commonly referred to as a "non-decreasing life annuity." This requirement that the annual benefit not decrease does not apply to a decrease that occurs solely because of the death of the survivor annuitant (but only if the benefit does not decrease to less than 50 percent of benefit paid prior to the death of the survivor annuitant) or because of the cessation or reduction of a Social Security supplement or qualified disability benefits. See Treas. Reg. 1.417(e)-1(d)(6) for further detail. For ease of discussion, this guidance will use the term "single-sum distribution" to mean any distribution that is paid in any form other than the exceptions described in this paragraph.

    Example:

    A benefit paid in the form of ten annual installments (with no life-contingent feature) would be considered a "single-sum distribution" for purposes of this guidance.

  3. The value of a single-sum distribution from a qualified defined benefit plan might be affected by the application of IRC 411(c) or IRC 415. This guidance does not address those additional Internal Revenue Code sections. For guidance on IRC 415, see IRM 4.72.6, Employee Plans Technical Guidelines, IRC 415(b) and IRM 4.72.7, Employee Plans Technical Guidelines, Examination Guidelines for IRC 415(c).

  4. The valuation rules under IRC 417(e)(3) are referenced by four other Internal Revenue Code sections. IRC 411(a)(11) provides that a participant must consent to the distribution of an accrued benefit if the present value of that benefit exceeds a certain amount. For this purpose, the present value must be calculated in accordance with IRC 417(e)(3). IRC 411(a)(13) provides that a hybrid plan shall not be treated as failing to satisfy the requirement of IRC 417(e)(3) solely because the present value of the accrued benefit of a participant is equal to the balance in the hypothetical account or as an accumulated percentage of the participant's final average compensation. IRC 411(c)(2) provides that the accrued benefit derived from an employee contribution is equal to the employee's accumulated contribution expressed as an annual benefit at normal retirement age, adjusted using the IRC 417(e)(3) interest rate. IRC 415(b)(2)(E) provides that, for benefits being paid under certain forms, the interest rates and mortality table under IRC 417(e)(3) are used to adjust the limitations under IRC 415.

4.72.10.2  (09-17-2014)
Definitely Determinable Benefits

  1. To be qualified under IRC 401(a), a pension plan must provide that all benefits are definitely determinable. See Treas. Reg. 1.401-1(b)(1)(i), Rev. Rul. 72-97 and Rev. Rul. 69-427.

  2. Rev. Rul. 79-90 clarified that, for benefits to be definitely determinable, the plan must specify the assumptions (or objective standards) used to determine the benefits. A plan may satisfy this requirement by any of the following approaches:

    1. The plan may define actuarial equivalence by means of specifying the actuarial assumptions (i.e., the interest rate and mortality table) to be used in the calculations.

    2. The plan may define actuarial equivalence by specifying a procedure (not subject to employer discretion) by which the actuarial assumptions will be determined. Typically, this is done by defining the interest rate with reference to publicly-known interest rates. This approach results in actuarial factors that vary according to the publicly-known interest rates. Examples of publicly-known rates include the rates on Treasury securities and rates published by the Pension Benefit Guaranty Corporation.

    3. The plan may define actuarial equivalence by specifying a table of factors that are to be used when converting the normal form of benefit into an optional form of benefit.

  3. The position taken in Rev. Rul. 79-90 was codified in IRC 401(a)(25) by the Retirement Equity Act of 1984 (REA). This section requires that, whenever the amount of any benefit is to be determined on the basis of actuarial assumptions, the benefit shall not be considered definitely determinable unless the plan specifies the actuarial assumptions in a way that precludes employer discretion.

  4. Treas. Reg. 1.411(d)-4, Q&A 4 provides that a pension plan that permits employer discretion to deny the availability of an IRC 411(d)(6) protected benefit violates the definitely determinable requirements of IRC 401(a), including the requirement under IRC 401(a)(25), that actuarial assumptions must be specified in the plan in a manner which precludes employer discretion.

  5. A special rule for determining the present value of accrued benefits may be used by a hybrid pension plan (for instance, a cash balance plan). See IRM 4.72.10.3.6, Special Rule for Hybird Plans. For benefits to be definitely determinable under a plan that is applying the special hybrid plan rule, the plan terms must specify that the present value of accrued benefits is equal to the amount of a participant’s hypothetical account or as an accumulated percentage of the participant’s final average compensation.

4.72.10.2.1  (09-17-2014)
Examination Steps

  1. Check the plan for a definite benefit formula that is not subject to the employer's discretion.

  2. Determine whether the plan defines the present value of a participant’s accrued benefit in a manner that is eligible for the special hybrid plan rule.

  3. Determine whether actuarial assumptions used to determine plan benefits are specified in the plan in a manner that precludes employer discretion. Check the plan for either specific language as to the interest rate and mortality assumptions to be used to determine the accrued benefit or objective standards that will be used to determine benefits, such as a table of factors.

  4. When determining an optional form of benefit, the requirements of IRC 417(e) and IRC 415 may sometimes override the plan's definition of actuarial equivalence. Thus, it is crucial in these cases to know which form of benefit is the basis for the amount of the single-sum distribution. It is important for the plan to specify which form of benefit is being used when the plan offers optional forms of benefits that are subsidized.

    Example:

    The normal retirement benefit under Plan A, a defined benefit plan, is a straight life annuity that begins when the participant reaches normal retirement age (which is 65). Plan A also provides for an early retirement benefit payable as a straight-life annuity beginning at or after age 55. Participants who elect early retirement have the option of receiving the benefit as a single-sum distribution. Plan A specifies the actuarial assumptions used for this calculation in a manner that precludes employer discretion.
    From the description just given, it is unclear whether the amount of the single-sum distribution will be based on the normal retirement benefit or the early retirement benefit. Unless it contains language that removes this uncertainty, Plan A might fail the requirement that benefits be definitely determinable. This could occur for a number of reasons. One obvious reason would be if the early-retirement benefit is provided on a subsidized basis relative to the normal retirement benefit. Even if the plan calls for a reduction in the annual benefit amount on account of the early retirement, the reduction factors used by the plan might not be consistent with the actuarial assumptions used to calculate the amount of the single-sum distribution. A third reason is if operation of IRC 415 causes the early-retirement benefit to be an amount lower than would otherwise have been provided under the plan.

4.72.10.3  (09-17-2014)
Minimum Present Value of Accrued Benefits Under IRC 417(e)(3)

  1. The amount payable as a single-sum distribution must not be less than the present value of the participant’s accrued benefit. The present value of any optional form of payment under the plan cannot be less than the actuarial equivalent of the participant’s normal retirement benefit. See Treas. Reg. 1.417(e)-1(d)(1). It is important to note that the participant’s accrued benefit for this purpose is expressed as an annual benefit commencing at normal retirement age. See IRC 411(a)(7).

  2. A hybrid plan (for instance, a cash balance plan) may use a special rule to determine the present value of a participant’s accrued benefit. See IRM 4.72.10.3.6, Special Rule for Hybrid Plans. Specifically, an applicable defined benefit plan as defined in IRC 411(a)(13) must provide that the current hypothetical account balance or an accumulated percentage of the participant’s final average compensation is defined as the present value of the participant’s accrued benefit.

  3. IRC 417(e)(3) provides rules for the determination of the present value of accrued benefits for any plan that is not eligible to use the special hybrid plan rule. The present value may not be less than the present value calculated using the applicable interest rate and the applicable mortality table, each as described in this section. The requirements described in this section are those enacted by the Retirement Protection Act of 1994 (RPA ‘94), as amended by PPA ‘06.

  4. The rules described in this guidance also apply when determining whether spousal consent is required for a distribution. See IRC 417(e)(1) and (2), as well as Treas. Reg. 1.417(e)-1(b).

4.72.10.3.1  (09-17-2014)
The Applicable Interest Rate

  1. For plan years beginning on or after January 1, 2008, the applicable interest rate is the adjusted first, second, and third segment rates for the month before the date of distribution, or such other time as the Secretary prescribes by regulations. However, the alternate dates allowed under the stability period rules described in IRM 4.72.10.3.2, The Stability Period are available to identify the applicable rates. See Rev. Rul. 2007-67. The segment rates are applied under rules similar to the rules of IRC 430(h)(2)(C), but for the purposes of determination of minimum present value under IRC 417 the segment rates are determined without regard to the 24-month averaging period provided under IRC 430(h)(2)(D)(i). Furthermore, IRC 417(e)(3)(D)(iii) provides a transition rule that phases in the use of segment rates over five years. See IRC 417(e)(3)(C) and IRC 417(e)(3)(D).

  2. Notice 2007-81; 2007-44 IRB 899 specifies how the adjusted segment rates that are used to determine minimum present values under IRC 417(e)(3) are determined.

  3. When determining the present value of an annuity stream, the timing of each annuity payment, based on the assumed commencement date, is taken into account to determine the interest rate used to value such payment. The first segment rate applies to benefits payable within five years of commencement, the second segment rate applies to benefits payable within the 15-year period which follows the first segment period, and the third segment rate applies to benefits payable after the first two segment periods.

  4. Treas. Reg. 1.417(e)-1(d)(4) as adopted under RPA ‘94 specifies two factors for the time for determining the applicable interest rate:

    1. Stability Period – The stability period defines the length of time during which the plan will use the same interest rate for determining the value of single-sum distributions.

    2. Lookback Month – The lookback month defines the month (or months) prior to the annuity starting date which is used as the reference point for setting the applicable interest rate.

      Although plan designers have a choice as to the many combinations of available stability periods and lookback months, the particular method used by the plan must be applied uniformly to all participants in the plan.

  5. Rev. Rul. 2007-67 holds that the rules of Treas. Reg. 1.417(e)-1(d)(4) regarding the time for determining the applicable interest rate continue to apply for plan years beginning on or after January 1, 2008, without regard to the PPA ’06 change in the basis for determining the applicable interest rate.

  6. Shortly after the start of each month, the Service publishes a Notice that states the segment rates to be used for the applicable interest rate for the month just ended.

  7. The MAP-21 enacted IRC 430(h)(2)(C)(iv), which stabilizes the interest rates used to determine minimum funding obligations under IRC 430. This was in response to historically low interest rates that were driving up minimum funding cost. The segment rates used for IRC 417(e)(3) are determined by disregarding the stabilization rule under IRC 430(h)(2)(C)(iv). See IRC 417(e)(3)(C)and (D).

4.72.10.3.2  (09-17-2014)
The Stability Period

  1. The stability period is the length of time during which the plan will use the same interest rate for determining the value of single-sum distributions. In other words, all single-sum distributions which have annuity starting dates that occur within the stability period will have the same applicable interest rate for purposes of IRC 417(e)(3).

  2. The stability period must be specified in the plan document. It may be either one month, one quarter, or one year. If the stability period is either a quarter or a year, the period can be either a calendar period or a plan period. If the stability period is a month, then a calendar month must be used. See Treas. Reg. 1.417(e)-1(d)(4)(ii).

  3. For example, if a plan year begins on January 15 and ends on the subsequent January 14, the following stability periods are permissible with respect to a distribution for which the annuity starting date is in February 2014:

    Plan year: January 15, 2014 to January 14, 2015
    Calendar year: January 1, 2014 to December 31,2014
    Plan quarter: January 15, 2014 to April 14, 2014
    Calendar quarter: January 1, 2014 to March 31, 2014
    Calendar month: February 1, 2014 to February 28, 2014
  4. In contrast, a stability period of January 15, 2014 to February 14, 2014 would not be permissible, since a calendar month must be used for any stability period lasting less than a quarter of a year.

4.72.10.3.3  (09-17-2014)
The Lookback Month

  1. The lookback month defines the month (or months) prior to the annuity starting date which is used as the reference point for setting the applicable interest rate. The lookback month must be specified in the plan document. The lookback month is either the first, second, third, fourth or fifth full calendar month preceding the first day of the stability period that contains the annuity starting date for the distribution. Treas. Reg. 1.417(e)-1(d)(4)(iii).

    Example:

    Plan A has a stability period that runs from January 15, 2010 through April 14, 2010 (which, for this plan, is a plan quarter). Suppose further that Plan A defines the lookback month as the third full calendar month preceding the first day of the stability period. For the stated stability period, the lookback month is October 2009.

4.72.10.3.4  (09-17-2014)
The Applicable Mortality Table

  1. As amended by PPA ’06, IRC 417(e)(3)(B) defines the applicable mortality table as a table based on the mortality table specified for the plan year under IRC 430(h)(3)(A) (without regard to subparagraphs (C) or (D) of that section), as modified by the Secretary.

  2. Rev. Rul. 2007-67 provides the applicable mortality table to be used to determine minimum present value under IRC 417(e)(3) for calendar year 2008. Notice 2008-85; 2008-42 IRB 905 provides the applicable mortality tables for calendar years 2009 through 2013. Notice 2013-49; 2013-32 IRB 127 provides the applicable mortality tables for calendar years 2014 and 2015. Subsequent plan years will be determined and published on the same basis as the applicable mortality table for 2008.

  3. In general, the applicable mortality table for a year applies to distributions with annuity starting dates that occur during stability periods that begin during the calendar year to which the applicable mortality table applies.

4.72.10.3.5  (09-17-2014)
Alternative Actuarial Factors

  1. IRC 417(e)(3) and associated regulations prescribe rules for determining the minimum amount (subject to the requirements of IRC 415 and IRC 411(c)) that may be received by a participant as a single-sum distribution. See IRM 4.72.10.1, Overview and Scope paragraph (2) for examples of distributions for which these rules do not apply. Nothing in the statute or regulation prevents a plan from specifying actuarial factors for single-sum distributions that are more generous than those required by the statute (provided, of course, that IRC 415 and other qualification requirements such as IRC 401(a)(4) are satisfied).

  2. If a plan specifies an actuarial basis for calculating the value of a single-sum distribution that is different than the basis prescribed under IRC 417(e)(3), then the plan must further provide that the amounts paid to the participant will not be less than the amounts calculated in conformance with IRC 417(e)(3). This means that the plan must specify an applicable interest rate and an applicable mortality table per IRC 417(e)(3), even if the plan provides for the use of other actuarial factors. This requirement also implies that the value of a participant's distribution must be calculated using the specified applicable interest rate and applicable mortality table, even if only for the tentative purpose of verifying that the plan's actuarial factors produce a greater distribution.

4.72.10.3.6  (09-17-2014)
Special Rule for Hybird Plans

  1. For purposes of these guidelines, a hybrid pension plan is a defined benefit plan under which some or all of a participant’s accrued benefit is calculated as the balance of a hypothetical account maintained for the participant (generally referred to as a "cash balance plan" ) or as an accumulated percentage of the participant’s final average compensation (generally referred to as a "pension equity plan" ). The regulations use the term statutory hybrid plan, which means a defined benefit plan that contains a statutory hybrid formula. See Treas. Reg. 1.411(a)(13)-1(d)(5). A statutory hybrid formula means a benefit formula that is either a lump sum-based benefit formula or a formula that is not a lump sum-based benefit formula but that has an effect similar to a lump sum-based benefit formula. See Treas. Reg. 1.411(a)(13)-1(d)(4)(i).

  2. In order to obtain "whipsaw relief" where the hypothetical account balance is projected to normal retirement age and then discounted back to the determination date, which may result in a lump sum in excess of the hypothetical account balance, a hybrid plan must define the present value of a participant’s accrued benefit as the amount expressed as the balance of the participant’s hypothetical account or as an accumulated percentage of the participant’s final average compensation. Such plans are referred to in IRC 411(a)(13) as statutory defined benefit plans. See IRC 411(a)(13)(A) and Treas. Reg. 1.411(a)(13)-1(b)(1).

  3. A cash balance plan or pension equity plan fails to meet the age nondiscrimination requirement prescribed by IRC 411(b)(1)(H) unless the plan terms provide that the interest crediting rate for any plan year does not exceed a market rate of return. See IRC 411(b)(5)(B). The elimination of the whipsaw issue is not directly linked to compliance with these interest rate standards, but failure to comply with the interest rate standards may result in disqualification of the plan due to non-compliance with IRC 411(b)(1)(H).

  4. An interest crediting rate is not in excess of a market rate of return if the plan terms provide that the interest credit for each plan year is determined using one of the following specified interest crediting rate:

    1. The interest rate on long-term investment grade corporate bonds, which is the third segment rate described in IRC 417(e)(3)(D) or 430(h)(2)(c)(iii). See Treas. Reg. 1.411(b)(5)-1(d)(3).

    2. A combination of the yields on Treasury bonds and corporate bonds and their associated margins. See Treas. Reg. 1.411(b)(5)-1(d)(4).

    3. Actual return on plan assets or the rate of return on annuity contracts. See Treas. Reg. 1.411(b)(5)-1(d)(5).

  5. For any other distributions that are subject to the requirements of IRC 417(e), for instance, 10 years of periodic payments with no life annuity payments after the 10th year or a social security leveling option (not a Qualified Social Security Supplement, described in Treas. Reg. 1.401(a)(4)-12), the assumptions or factors required under IRC 417(e)(3) must be used to determine the present value of accrued benefits.

4.72.10.4  (05-17-2002)
Information Needed for Calculating the Single-Sum Distribution

  1. Various facts and factors are needed in order to determine the amount of a single-sum distribution. Some of these must be located in the plan document; others are unique to the participant receiving the distribution.

4.72.10.4.1  (09-17-2014)
Plan-Specific Information

  1. The manner in which the plan defines a participant’s accrued benefit must be identified. Specifically, identify whether some or all of the participant’s accrued benefit is defined in a manner that is characterized as a hybrid plan eligible for special rules, as described in IRM 4.72.10.3.6, Special Rule for Hybrid Plans.

  2. The actuarial factors (i.e., interest rate and mortality table) used by the plan for distributions must be identified. Often, these factors are located either in the definitional section of the plan (under "Actuarial Equivalence" or "Present Value" ), or in the section of the plan that addresses accrued benefits or distributions. If no rates or standards are specified by the plan, the plan may fail the qualification requirements. See IRM 4.72.10.2, Definitely Determinable Benefits.

  3. If the factors used by a plan for distributions (as described in the previous paragraph) differ from those meeting the requirements of IRC 417(e), then it is necessary to determine the plan's procedure for choosing the applicable interest rate and the applicable mortality table used for ensuring that the minimum present value requirement of IRC 417(e) is satisfied. See IRM 4.72.10.3, Minimum Present Value of Accrued Benefits Under IRC 417(e)(3).

  4. Some plans use two interest rates, one for the post-retirement period and one for the pre-retirement period. In either case, distributions determined under the plan’s terms must still satisfy the minimum present value requirements as determined under the single applicable interest rate used for IRC 417(e).

  5. The form of benefit upon which the single-sum distribution will be based must be identified, as specified by plan terms. This will generally be the normal form of benefit under the plan. In addition, it is necessary to know the age at which the benefit is presumed payable.

    Example:

    If a participant is to receive a single-sum distribution at an age earlier than the plan's normal retirement age, there might be a question as to whether the amount of the distribution is based on an annuity beginning immediately at the participant's attained age, or a deferred annuity that would not have begun until the participant reached the plan's normal retirement age. In order to avoid such ambiguity the plan must specify how the single sum is to be calculated but the single sum amount must be at least as great as the present value of the annuity payable to the participant at the plan's normal retirement age.

4.72.10.4.2  (05-17-2002)
Participant-Specific Information

  1. The annuity starting date for the distribution must be specified.

  2. The participant's attained age as of the annuity starting date (and, if appropriate, the attained age of the spouse) must be determined.

  3. The accrued benefit in the form of benefit that will be used as the basis of the single-sum distribution must be determined. This accrued benefit must reflect the terms of the plan, as well as the requirements of IRC 415 and IRC 411(c). Of course, it will also reflect the appropriate details of the participant's employment history.

  4. Because the applicable mortality table under IRC 417(e) is a unisex table, the participant's gender is not needed for calculating the minimum amount of the distribution under IRC 417(e).

4.72.10.4.3  (05-17-2002)
Examination Steps

  1. For each single-sum distribution that was made during the years being examined, assemble all of the information described in IRM 4.72.10.4.1, Plan-Specific Information and IRM 4.72.10.4.2, Participant-Specific Information.

  2. Determine whether the amounts of the single-sum distribution were at least as great as the amounts required by IRC 417(e). If the plan provides for the use of alternative factors that result in a single-sum distribution that is greater than the minimum amount required under IRC 417(e), check that the participant was paid the correct greater amount.

  3. Because the applicable interest rate is a set of percentages that are expressed in basis points (i.e., a percentage with two decimal places), it is not feasible to maintain a collection of actuarial factors for each different applicable interest rate. As a practical matter, performing the required calculations requires the use of a computer, along with spreadsheets or other types of software that have been designed for making these calculations. If you do not have access to such software, contact the field actuary (or other actuarial contact) for your area.

  4. Make sure the amount paid did not exceed the maximum allowable under IRC 415.

4.72.10.5  (09-17-2014)
Effective Dates and Prior Law

  1. Generally, the rules under IRC 417(e), as revised by PPA ‘06, are effective for distributions with annuity starting dates in plan years beginning in or after 2008.

  2. The special rules for hybrid plan regarding the calculation of benefits (IRC 411(a)(13)(A)) is effective for distributions made after August 17, 2006.

  3. The requirements of IRC 417(e) that were in force prior to the revisions made by PPA ’06 are set forth in the preceding version of this IRM and in regulations and other guidance referenced in this IRM.

4.72.10.6  (09-17-2014)
IRC 411(d)(6) Relief

  1. IRC 411(d)(6) prohibits the reduction of a participant's accrued benefit by a plan amendment. For purposes of determining whether or not a participant's accrued benefit is reduced, all plan provisions which directly or indirectly affect the computation of the accrued benefit are taken into account. Plan provisions that indirectly affect the computation of a participant's accrued benefits include plan provisions relating to actuarial factors for determining optional or early retirement benefits. See Treas. Reg. 1.411(d)-3(b).

  2. A plan amendment to determine the applicable interest rate under the rules of IRC 417(e)(3) as in effect for plan years beginning on or after January 1, 2008, will not violate IRC 411(d)(6) despite any reduction in accrued benefits or reduction in any distribution with an annuity starting date in a 2008 plan year or subsequent year. This exemption from IRC 411(d)(6) applies only if the cause of the reduction in accrued benefits or distribution is the substitution of the modified segment rates for the pre-PPA ’06 applicable interest rates for the same period. See Rev. Rul. 2007-67.

    1. If a plan amendment changes the time for determining the interest rate (that is, modifying the stability period or the lookback month), even if such amendment is adopted coincident with the amendment to incorporate the PPA ’06 change in interest rate, such amendment is subject to IRC 411(d)(6). However, pursuant to Teas. Reg. 1.417(e)-1(d)(10)(ii), IRC 411(d)(6) is not violated if the amendment is adopted before the effective date of such amendment and, for the one-year period following the effective date of the amendment, the interest rate used is either the interest rate determined under the pre-amendment timing rule or the interest rate determined under the post-amendment timing rule, whichever produces the larger distribution.

    2. If a plan amendment substitutes the modified segment rates for a rate that is not the applicable interest rate that was in force immediately before the 2008 effective date of PPA ’06 (that is, the 30-year Treasury rate), then the amendment must satisfy IRC 411(d)(6).

  3. A plan amendment to incorporate by reference the applicable mortality table under IRC 417(e)(3) as amended by PPA ’06 will not violate IRC 411(d)(6) despite any reduction in accrued benefits or reduction in any distribution with an annuity starting date in 2008 plan year or a subsequent year. This exemption from IRC 411(d)(6) applies only if the cause of the reduction in accrued benefits or distribution is the substitution of the applicable mortality table for the prior applicable mortality table under IRC 417(e)(3). See Rev. Rul. 2007-67.

  4. IRC 411(d)(6) relief provided by PPA ‘06 applies to an amendment that provides a participant the greater of the amount calculated by (i) using the pre-PPA '06 applicable mortality table and pre-PPA '06 applicable interest rate, or (ii) the amount calculated by using the post-PPA '06 applicable mortality table and post-PPA '06 applicable interest rate, even if the pre-PPA '06 applicable interest rate and/or pre-PPA '06 applicable mortality table apply only for a specified period of time (as long as the amendment is adopted during the amendment period prescribed by PPA '06).
    However, with respect to a particular plan provision, relief provided under PPA '06 applies only to the first plan amendment that implements the post-PPA '06 applicable interest rate and/or post-PPA '06 applicable mortality table with respect to the provision, and any subsequent amendment with respect to the provision will not be treated as adopted "pursuant to" statutory provisions under PPA '06, as required for relief under PPA '06. For purposes of determining whether an amendment that implements the post-PPA '06 applicable interest rate and/or post-PPA '06 applicable mortality table with respect to a particular plan provision is the first such amendment, amendments adopted on or before June 30, 2008, are disregarded. See Notice 2008-30; 2008-12 IRB 638 Q&A 17.

  5. PPA ’06 also provided relief regarding the QJSA requirement and IRC 417(e)(3) valuation requirement. See Notice 2008-30, Q&A 16.

  6. The IRC 411(d)(6) relief described in this section of the guidelines applies only with respect to the minimum present values determined under IRC 417(e)(3). If a plan determines a distribution amount using alternative actuarial factors that produce an amount that is greater than the minimum amount prescribed by IRC 417(e)(3), and if the distribution is a protected benefit under IRC 411(d)(6), then the provisions of IRC 411(d)(6) must be met by any amendment that modifies the plan’s basis for the determination of the distribution amount, even if IRC 411(d)(6) relief is available with respect to the minimum amount of that distribution.

4.72.10.6.1  (09-17-2014)
Examination Steps

  1. Determine if a plan amendment eliminates any optional forms of benefit, such as a single-sum distribution option.

  2. Check whether actuarial assumptions used to compute accrued benefits have been amended. If yes, determine whether the amendment complies with IRC 411(d)(6). In general, an increase in the interest rate will result in a decrease in the amount of the present value, thereby resulting in a reduction in the accrued benefit in violation of IRC 411(d)(6). Also, based upon the effective date of and date of adoption of amendments changing the actuarial assumptions, determine if the amendment satisfies IRC 411(d)(6).


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