A workshop about fiduciary duties
and correction programs will be held June 12 in Nashville, Tennessee, and the
agency’s “Getting It Right! Know Your Fiduciary Responsibilities” seminar will
be held August 14 in Chicago, Illinois.
The American Benefits Council welcomes proposed
regulations to Internal Revenue Code Section 417(e), on the treatment of
benefits paid partially as an annuity and partially in another form from a
defined benefit (DB) pension plan.
However, Michael L. Hadley, a
partner in the law firm of Davis & Harman, in testimony on the Council’s
behalf, urged the Treasury and the Internal Revenue Service (IRS) to apply the
proposals prospectively only and to state that no inference should be drawn
regarding current law.
“[W]e
disagree with Treasury and IRS’ position in the guidance that under current
law, when one portion of a retirement benefit distribution subject to Section
417(e) is a ‘decreasing’ benefit, both portions of the distribution are subject
to the minimum present value requirements of Section 417(e)(3). The Council
believes instead the current regulation does not clearly require that and can
be reasonably interpreted to reach the opposite result,” Hadley said. (See
“U.S.
Treasury Proposal to Reduce Regulatory Burdens for Retirees.”)
Hadley explained: “Generally lump
sums and certain other distributions paid from defined benefit pension plans
must be no less than the amount calculated using the interest and mortality
assumptions provided under Section 417(e). The regulations apply the 417(e) valuation
requirement to all payment forms not explicitly exempted.” Hadley asked for
clarity about an exemption such as one relating to non-decreasing
annuities.
The current Section 417(e) present value
requirement “does not apply to an amount of a distribution paid in the form of
an annual benefit that does not decrease during the life of the participant,”
said Hadley. “If the requirement applies to the whole benefit if any portion of
the benefit decreases, then saying it does not apply to ‘an amount’ of a
distribution is unnecessary. Rather, the regulation would have just said 417(e)
does not apply to ‘a distribution’ or to ‘an optional form’ that does not
decrease during the life of the participant.”
(Cont...)
Hadley also requested that Treasury
and IRS officials ensure that the final regulation’s discussion of its
“three-bucket” approach to plan designs that offer bifurcated benefits
(separately determined benefits with separate elections made by the
participant) does not result in a retirement plan program being inadvertently
excluded from the relief because the design does not fit into an allowed
category under the proposed rule.
“The Council appreciates Treasury
and the IRS’ efforts to clarify the treatment of optional forms of benefits
paid out under the Section 417(e) regulations,” Hadley concluded. “Retirement
plan participants are better served by having a choice on how they receive
those benefits. But reasonable minds might differ on the meaning of the
proposed regulation, which is exactly why we support a
clarification.”