Proposed Rule2022-02522
Required Minimum Distributions
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
February 24, 2022
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains proposed regulations relating to required minimum distributions from qualified plans; section 403(b) annuity contracts, custodial accounts, and retirement income accounts; individual retirement accounts and annuities; and eligible deferred compensation plans under section 457. These regulations will affect administrators of, and participants in, those plans; owners of individual retirement accounts and annuities; employees for whom amounts are contributed to section 403(b) annuity contracts, custodial accounts, or retirement income accounts; and beneficiaries of those plans, contracts, accounts, and annuities.
Full Text
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<title>Federal Register, Volume 87 Issue 37 (Thursday, February 24, 2022)</title>
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[Federal Register Volume 87, Number 37 (Thursday, February 24, 2022)]
[Proposed Rules]
[Pages 10504-10567]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-02522]
[[Page 10503]]
Vol. 87
Thursday,
No. 37
February 24, 2022
Part III
Department of the Treasury
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Internal Revenue Service
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26 CFR Parts 1 and 54
Required Minimum Distributions; Proposed Rule
Federal Register / Vol. 87 , No. 37 / Thursday, February 24, 2022 /
Proposed Rules
[[Page 10504]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 54
[REG-105954-20]
RIN 1545-BP82
Required Minimum Distributions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Notice of proposed rulemaking and notice of public hearing.
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SUMMARY: This document contains proposed regulations relating to
required minimum distributions from qualified plans; section 403(b)
annuity contracts, custodial accounts, and retirement income accounts;
individual retirement accounts and annuities; and eligible deferred
compensation plans under section 457. These regulations will affect
administrators of, and participants in, those plans; owners of
individual retirement accounts and annuities; employees for whom
amounts are contributed to section 403(b) annuity contracts, custodial
accounts, or retirement income accounts; and beneficiaries of those
plans, contracts, accounts, and annuities.
DATES: Written or electronic comments must be received by May 25, 2022.
Outlines of topics to be discussed at the public hearing scheduled for
June 15, 2022, at 10:00 a.m. must be received by May 25, 2022.
As of February 24, 2022, Sec. 1.408-8 of the notice of proposed
rulemaking that was published in the Federal Register on July 14, 1981
(46 FR 36198) is withdrawn.
ADDRESSES: Commenters are strongly encouraged to submit public comments
electronically. Submit electronic submissions via the Federal
eRulemaking Portal at <a href="http://www.regulations.gov">www.regulations.gov</a> (indicate IRS and REG-105954-
20) by following the online instructions for submitting comments. Once
submitted to the Federal eRulemaking Portal, comments cannot be edited
or withdrawn. The IRS expects to have limited personnel available to
process public comments that are submitted on paper through mail. Until
further notice, any comments submitted on paper will be considered to
the extent practicable. The Department of the Treasury (Treasury
Department) and the IRS will publish for public availability any
comment submitted electronically, and to the extent practicable on
paper, to its public docket. Send paper submissions to: CC:PA:LPD:PR
(REG-105954-20), Room 5203, Internal Revenue Service, P.O. Box 7604,
Ben Franklin Station, Washington, DC 20044.
FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations,
Brandon M. Ford or Laura B. Warshawsky, (202) 317-6700; concerning
submissions of comments and outlines of topics for the public hearing,
Regina Johnson, (202) 317-5177 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains proposed amendments to the Income Tax
Regulations (26 CFR part 1) under section 401(a)(9) of the Internal
Revenue Code of 1986 (Code). These proposed regulations address the
required minimum distribution requirements for plans qualified under
section 401(a) and are being proposed to update the regulations to
reflect the amendments made to section 401(a)(9) by sections 114 and
401 of the Setting Every Community Up for Retirement Enhancement Act of
2019 (SECURE Act), enacted on December 20, 2019, as Division O of the
Further Consolidated Appropriations Act of 2019, Public Law 116-94, 133
Stat. 2534 (2019).
The rules of section 401(a)(9) are adopted by reference in section
408(a)(6) and (b)(3) for individual retirement accounts and individual
retirement annuities (collectively, IRAs), section 408A(c)(5) for Roth
IRAs, section 403(b)(10) for annuity contracts, custodial accounts, and
retirement income accounts described in section 403(b) (section 403(b)
plans), and section 457(d) for eligible deferred compensation plans.
The determination of the required minimum distribution is also relevant
for purposes of the related excise tax under section 4974 and the
definition of eligible rollover distribution in section 402(c).
Accordingly, this document also contains proposed conforming amendments
to the Income Tax Regulations (26 CFR part 1) under sections 402(c),
403(b), 408, and 457, and to the Pension Excise Tax Regulations (26 CFR
part 54) under section 4974.
Section 401(a)(9)--Required Minimum Distributions
Section 401(a)(9) provides rules for distributions from a qualified
plan during the life of the employee in section 401(a)(9)(A) and after
the death of the employee in section 401(a)(9)(B). The rules set forth
a required beginning date for distributions and identify the period
over which the employee's entire interest must be distributed.
Specifically, section 401(a)(9)(A)(ii) provides that the entire
interest of an employee in a qualified plan must be distributed,
beginning not later than the employee's required beginning date, in
accordance with regulations, over the life of the employee or over the
lives of the employee and a designated beneficiary (or over a period
not extending beyond the life expectancy of the employee and a
designated beneficiary). Section 401(a)(9)(B)(i) provides that, if the
employee dies after distributions have begun, the employee's remaining
interest must be distributed at least as rapidly as under the
distribution method used by the employee as of the date of the
employee's death.
Section 401(a)(9)(B)(ii) and (iii) provides that, if the employee
dies before required minimum distributions have begun, the employee's
interest must either be: (1) Distributed (in accordance with
regulations) over the life or life expectancy of the designated
beneficiary with the distributions generally beginning no later than 1
year after the date of the employee's death; or (2) distributed within
5 years after the death of the employee. However, under section
401(a)(9)(B)(iv), a surviving spouse may wait until the date the
employee would have attained age 72 to begin taking required minimum
distributions.
Section 401(a)(9)(C) (as amended by section 114 of the SECURE Act)
defines the required beginning date for an employee (other than a 5-
percent owner or IRA owner) as April 1 of the calendar year following
the later of the calendar year in which the employee attains age 72 or
the calendar year in which the employee retires. For a 5-percent owner
or an IRA owner, the required beginning date is April 1 of the calendar
year following the calendar year in which the individual attains age
72, even if the individual has not retired. Section 401(a)(9)(C)(iii)
provides that certain employees who commence benefits under a defined
benefit plan after the year in which they attain age 70\1/2\ must
receive an actuarial increase.
Section 401(a)(9)(D) provides that (except in the case of a life
annuity) the life expectancy of an employee and the employee's spouse
that is used to determine the period over which payments must be made
may be redetermined, but not more frequently than annually.
Section 401(a)(9)(E)(i) defines the term designated beneficiary as
any individual designated as a beneficiary by the employee. Section
401(a)(9)(E)(ii) (which was added as part of section 401 of the SECURE
Act) defines the term
[[Page 10505]]
eligible designated beneficiary with respect to any employee, as any
designated beneficiary who, as of the date of the employee's death, is:
(1) The surviving spouse of the employee; (2) a child of the employee
who has not reached the age of majority (within the meaning of section
401(a)(9)(F)); (3) disabled (within the meaning of section 72(m)(7));
(4) a chronically ill individual (within the meaning of section
7702B(c)(2), subject to certain exceptions); or (5) an individual not
described elsewhere in section 401(a)(9)(E)(ii) who is not more than 10
years younger than the employee.
Section 401(a)(9)(E)(iii) provides that, subject to the rule in
section 401(a)(9)(F), the treatment of an employee's child as an
eligible designated beneficiary ends when the child attains the age of
majority and that any remaining interest must be distributed within 10
years of that date. Section 401(a)(9)(F) provides that, under
regulations, any amount paid to a child is treated as if it had been
paid to the surviving spouse if it will be paid to the surviving spouse
upon that child reaching the age of majority (or other designated event
permitted under regulations).
Section 401(a)(9)(G) provides that any distribution required to
satisfy the incidental death benefit requirement of section 401(a) is
treated as a required minimum distribution.
Section 401(a)(9)(H) (which was added as part of section 401 of the
SECURE Act) provides special rules that generally apply to the
distribution of an employee's remaining interest in a defined
contribution plan after the death of that employee. Specifically,
section 401(a)(9)(H)(i) provides that, except in the case of a
beneficiary who is not a designated beneficiary, section
401(a)(9)(B)(ii): (1) Is applied by substituting 10 years for 5 years;
and (2) applies whether or not distributions of the employee's interest
have begun in accordance with section 401(a)(9)(A). Section
401(a)(9)(H)(ii) provides that section 401(a)(9)(B)(iii) (permitting
payments over the life or life expectancy of the designated beneficiary
as an alternative to the 10-year rule) applies only in the case of an
eligible designated beneficiary. Section 401(a)(9)(H)(iii) provides
that if an eligible designated beneficiary dies before the employee's
interest is entirely distributed, then section 401(a)(9)(H)(ii) does
not apply to the beneficiary of the eligible designated beneficiary,
and the remainder of the employee's interest must be distributed within
10 years after the death of the eligible designated beneficiary.
Section 401(a)(9)(H)(iv) provides that in the case of an applicable
multi-beneficiary trust, if, under the terms of the trust, it is to be
divided immediately upon the death of the employee into separate trusts
for each beneficiary, then section 401(a)(9)(H)(ii) is applied
separately with respect to the portion of the employee's interest that
is payable to any disabled or chronically ill eligible designated
beneficiary. Section 401(a)(9)(H)(iv) also provides that in the case of
an applicable multi-beneficiary trust, if, under the terms of the
trust, no individual (other than an eligible designated beneficiary who
is disabled or chronically ill) has any right to the employee's
interest in the plan until the death of all of those disabled or
chronically ill eligible designated beneficiaries with respect to the
trust, then: (1) Section 401(a)(9)(B)(iii) (permitting payments over
the life expectancy of a beneficiary) will apply to the distribution of
the employee's interest; and (2) any beneficiary who is not disabled or
chronically ill will be treated as a beneficiary of the eligible
designated beneficiary who is disabled or chronically ill upon the
death of that eligible designated beneficiary.
Section 401(a)(9)(H)(v) defines the term applicable multi-
beneficiary trust as a trust: (1) Which has more than one beneficiary;
(2) all of the beneficiaries of which are treated as designated
beneficiaries for purposes of determining the distribution period
pursuant to section 401(a)(9); and (3) at least one of the
beneficiaries of which is an eligible designated beneficiary who is
either disabled or chronically ill.
Section 401(a)(9)(H)(vi) provides that, for purposes of applying
section 401(a)(9)(H), an eligible retirement plan defined in section
402(c)(8)(B) (other than a defined benefit plan described in section
402(c)(8)(B)(iv) or (v) or a qualified trust that is a part of a
defined benefit plan) is treated as a defined contribution plan.\1\
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\1\ The eligible retirement plans described in section
402(c)(8)(B)(iv) and (v) are an annuity plan described in section
403(a) and an eligible deferred compensation plan described in
section 457(b) that is maintained by an eligible employer described
in section 457(e)(1)(A), respectively.
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Prior to amendment by section 114 of the SECURE Act, section
401(a)(9)(C) of the Code defined the required beginning date by
reference to the calendar year in which the employee attains age 70\1/
2\. Section 114(d) of the SECURE Act provides that the amendments made
by section 114 of the SECURE Act apply to distributions required to be
made after December 31, 2019, with respect to individuals who attain
age 70\1/2\ after that date.
Section 401(b)(1) of the SECURE Act provides that, generally, the
amendments made to section 401(a)(9)(E) and (H) of the Code apply to
distributions with respect to employees who die after December 31,
2019.
Section 401(b)(2) of the SECURE Act provides that in the case of a
plan maintained pursuant to one or more collective bargaining
agreements between employee representatives and one or more employers
that were ratified before December 20, 2019, the amendments to sections
401(a)(9)(E) and (H) of the Code apply to distributions with respect to
employees who die in calendar years beginning after December 31, 2021,
or if earlier, the later of: (1) The date on which the last of the
collective bargaining agreements terminated (without regard to any
extension of the agreement to which the parties agree on or after
December 20, 2019), or (2) December 31, 2019.
Section 401(b)(3) of the SECURE Act provides that in the case of a
governmental plan (as defined in section 414(d) of the Code), the
amendments to sections 401(a)(9)(E) and (H) will apply to distributions
with respect to employees who die after December 31, 2021.
Section 401(b)(4) of the SECURE Act provides that the amendments
made to sections 401(a)(9)(E) and (H) of the Code do not apply to a
qualified annuity that is a binding annuity contract in effect on
December 20, 2019, and at all times thereafter.\2\
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\2\ Section 401(b)(4)(B) of the SECURE Act provides that the
term qualified annuity means, with respect to an employee, an
annuity--
(i) which is a commercial annuity (as defined in section
3405(e)(6) of the Internal Revenue Code of 1986);
(ii) under which the annuity payments are made over the life of
the employee or over the joint lives of such employee and a
designated beneficiary (or over a period not extending beyond the
life expectancy of such employee or the joint life expectancy of
such employee and a designated beneficiary) in accordance with the
regulations described in section 401(a)(9)(A)(ii) of such Code (as
in effect before such amendments) and which meets the other
requirements of section 401(a)(9) of such Code (as so in effect)
with respect to such payments; and
(iii) with respect to which--
(I) annuity payments to the employee have begun before the date
of enactment of the SECURE Act, and the employee has made an
irrevocable election before such date as to the method and amount of
the annuity payments to the employee or any designated
beneficiaries; or
(II) if subclause (I) does not apply, the employee has made an
irrevocable election before the date of enactment of the SECURE Act
as to the method and amount of the annuity payments to the employee
or any designated beneficiaries.
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Section 401(b)(5) of the SECURE Act provides that if an employee
dies before the effective date of section 401(a)(9)(H)
[[Page 10506]]
of the Code for a plan, then, in applying the amendments made to
sections 401(a)(9)(E) and (H) to the employee's designated beneficiary
who dies on or after the effective date, (1) the amendments apply to
any beneficiary of the designated beneficiary, and (2) the designated
beneficiary is treated as an eligible designated beneficiary for
purposes of section 401(a)(9)(H)(ii).
Section 402(c)--Rollovers
Section 402(c) provides rules related to the rollover of a
distribution from a qualified plan to another eligible retirement plan.
Prior to being amended by section 641 of the Economic Growth and Tax
Relief Reconciliation Act of 2001, Public Law 107-16, 115 Stat. 38
(2001) (EGTRRA), section 402(c)(2) of the Code limited the portion of a
distribution that could be rolled over to the amount that would have
been includible in income in the absence of the rollover. Section 641
of EGTRRA and section 411(q) of the Job Creation and Worker Assistance
Act of 2002, Public Law 107-147, 116 Stat. 21 (2002), expanded the
rollover rules to permit a rollover to an IRA of the portion of the
distribution that would have been excluded from gross income in the
absence of the rollover (that is, the portion of the amount distributed
that consists of the employee's investment in the contract). In
addition, that portion may be transferred in a direct trustee-to-
trustee transfer to a qualified trust or to an annuity contract
described in section 403(b) of the Code, but only if the trust or
annuity contract separately accounts for the amount that consists of
the employee's investment in the contract. If only a portion of an
eligible rollover distribution is rolled over or transferred, then the
amount rolled over or transferred is treated as consisting first of the
portion of the distribution that is not allocable to the employee's
investment in the contract.
Under section 402(c), any amount distributed from a qualified plan
generally will be excluded from income if it is transferred to an
eligible retirement plan no later than the 60th day following the day
the distribution is received. Section 402(c)(3)(B) was added by section
644 of EGTRRA to provide that the Secretary may waive the 60-day
rollover requirement in certain circumstances. Section 402(c)(3)(C) was
added to the Code by section 13613 of the Tax Cuts and Jobs Act, Public
Law 115-97, 131 Stat. 2054 (2017) (TCJA) to provide an extended
rollover deadline for qualified plan loan offset (QPLO) amounts.\3\
Specifically, the deadline for rollover of any portion of a QPLO amount
is extended so that it ends no earlier than the distributee's tax
filing due date (including extensions) for the taxable year in which
the offset occurs.
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\3\ A QPLO amount is defined in section 402(c)(3)(C)(ii) as a
plan loan offset amount that is distributed from a qualified
employer plan to a participant or beneficiary solely by reason of:
(1) The termination of the qualified employer plan, or (2) the
failure to meet the repayment terms of the loan from the plan
because of the severance from employment of the participant.
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Subject to certain exclusions, section 402(c)(4) provides that an
eligible rollover distribution means any distribution to an employee of
all or any portion of the balance to the credit of the employee in a
qualified plan. Section 402(c)(4)(A) excludes from the definition of an
eligible rollover distribution any distribution that is one of a series
of substantially equal periodic payments payable for the life (or life
expectancy) of the employee (or the employee and the employee's
designated beneficiary), or for a specified period of 10 years or more.
Section 402(c)(4)(B) provides that any distribution that is required
under section 401(a)(9) is excluded from the definition of an eligible
rollover distribution. Section 402(c)(4)(C), which was added by section
636(b)(1) of EGTRRA, excludes hardship distributions from the
definition of an eligible rollover distribution.
Prior to being amended by section 641 of EGTRRA, section
402(c)(8)(B) of the Code provided that the only type of eligible
retirement plan permitted to receive a rollover from a qualified plan
was another qualified plan or an IRA. Section 641 of EGTRRA amended
section 402(c)(8)(B) to expand the list of retirement plans eligible to
receive rollovers to include an annuity contract described in section
403(b) of the Code, and an eligible deferred compensation plan
described in section 457(b) which is maintained by an eligible employer
described in section 457(e)(1)(A). Section 617(c) of EGTRRA amended
section 402(c)(8)(B) of the Code to provide that if any portion of an
eligible rollover distribution is attributable to distributions from a
designated Roth account (as defined in section 402A), that portion may
be rolled over only to another designated Roth account or a Roth IRA
(as described in section 408A). Section 641 of EGTRRA also added
section 402(c)(10) to the Code to provide that an eligible deferred
compensation plan described in section 457(b) maintained by an eligible
employer described in section 457(e)(1)(A) may accept rollovers from a
different type of eligible retirement plan only if it separately
accounts for the amounts rolled into the plan.
Section 402(c)(9) provides that, if any distribution attributable
to an employee is paid to the spouse of the employee after the
employee's death, then section 402(c) applies to that distribution in
the same manner as if the spouse were the employee. At the time section
402(c)(9) was enacted, a surviving spouse was permitted to roll over an
eligible rollover distribution only to an IRA. However, section 641 of
EGTRRA amended section 402(c)(9) of the Code to expand the type of
eligible retirement plan permitted to receive a spousal rollover to
include not just an IRA, but also any other eligible retirement plan.
Section 402(c)(11) of the Code was added by section 829 of the
Pension Protection Act of 2006, Public Law 109-280, 120 Stat. 780
(2006) (PPA), to provide that an individual who is not the surviving
spouse of the employee and who is a designated beneficiary (as defined
by section 401(a)(9)(E) of the Code) may elect to have any portion of a
distribution made in the form of a direct trustee-to-trustee transfer
to an individual retirement plan established for the purpose of
receiving that distribution. If a direct trustee-to-trustee transfer is
made pursuant to section 402(c)(11), then the required minimum
distribution rules applicable to distributions after the employee's
death in section 401(a)(9)(B) (other than section 401(a)(9)(B)(iv))
will apply to the individual retirement plan.
The rollover rules of section 402(c) also apply to a distribution
from a section 403(a) qualified annuity plan, a section 403(b) plan,
and an eligible deferred compensation plan described in section 457(b)
maintained by an eligible employer described in section 457(e)(1)(A).
See sections 403(a)(4)(B), 403(b)(8)(B), and 457(e)(16)(B),
respectively.
Sections 403(a), 403(b), 408, and 457--Other Arrangements Subject to
Section 401(a)(9)
Under section 403(a)(1), a qualified annuity plan under section
403(a) must meet the requirements of section 404(a)(2) (which provides
that an annuity plan must satisfy the required minimum distribution
rules under section 401(a)(9)). Sections 403(b)(10), 408(a)(6), and
408(b)(3) provide that a section 403(b) plan, an individual retirement
account, and an individual retirement annuity, respectively, must
satisfy rules similar to the requirements of section 401(a)(9) and the
incidental death benefit requirements of section
[[Page 10507]]
401(a). Under section 457(b)(5) and (d)(2), a plan is an eligible
deferred compensation plan described in section 457(b) only if it
satisfies the minimum distribution requirements of section 401(a)(9).
Section 4974--Excise Tax on Failure To Satisfy Section 401(a)(9)
Section 4974(a) provides that if the amount distributed during the
taxable year of a payee under any qualified retirement plan (as defined
in section 4974(c)) or any eligible deferred compensation plan (as
defined in section 457(b)) is less than that taxable year's minimum
required distribution (as defined in section 4974(b)), then an excise
tax is imposed on the payee equal to 50 percent of the amount by which
the minimum required distribution for the taxable year exceeds the
amount actually distributed in that taxable year.
Section 4974(d) provides that if the taxpayer establishes to the
satisfaction of the Secretary that the failure to distribute the entire
amount required in a taxable year was due to reasonable error and
reasonable steps are being taken to remedy that shortfall, then the
Secretary may waive the excise tax imposed in section 4974(a) for that
taxable year.
Good Faith Compliance Standard for Governmental Plans
Section 823 of PPA provides that a governmental plan (as defined in
section 414(d) of the Code) is treated as having complied with section
401(a)(9) if the plan complies with a reasonable, good faith
interpretation of section 401(a)(9).
Existing Regulations
Final regulations relating to required minimum distributions from a
qualified plan, an IRA, and a section 403(b) plan, have been subject to
a series of amendments and additions since they were published in the
Federal Register on April 17, 2002 (67 FR 18988).\4\ Final regulations
relating to required minimum distributions from defined benefit plans
and annuity contracts were published in the Federal Register on June
15, 2004 (69 FR 68077). Final regulations published in the Federal
Register on September 8, 2009 (74 FR 45993) updated the rules to permit
a governmental plan to comply with the required minimum distribution
rules using a reasonable, good faith interpretation of section
401(a)(9). Final regulations relating to qualified longevity annuity
contracts were published in the Federal Register on July 2, 2014 (79 FR
37633). Final regulations published in the Federal Register on November
12, 2020 (85 FR 72477) updated the life expectancy and distribution
period tables for distribution calendar years that begin on or after
January 1, 2022.
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\4\ Final regulations under section 4974 (relating to excise
taxes for excess accumulations in qualified plans) were published at
the same time but have not been amended.
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Final regulations relating to section 402(c) and eligible rollover
distributions were published in the Federal Register on September 22,
1995 (60 FR 49199). Since those regulations were issued, section 402(c)
has been amended several times, and guidance related to those
amendments has generally been issued in the Internal Revenue Bulletin
rather than through the issuance of new regulations. For example,
Notice 2007-7, 2007-1 C.B. 395, provided guidance related to the
amendments to section 402(c) made by PPA. However, final regulations
related to the extended period of time to roll over a QPLO amount under
section 402(c)(3)(C) were published in the Federal Register on January
6, 2021 (86 FR 464). See Sec. 1.402(c)-3.
Explanation of Provisions
These proposed regulations would update several existing
regulations under sections 401(a)(9), 402(c), 403(b), 457, and 4974 to
reflect statutory amendments that have been made since those
regulations were last issued. These proposed regulations also clarify
certain issues that have been raised in public comments and private
letter ruling requests. These proposed regulations also replace the
question-and-answer format of the existing regulations under sections
401(a)(9), 402(c), 408, and 4974 with a standard format. Rules under
the existing regulations that are retained in these proposed
regulations are generally not discussed in this Explanation of
Provisions.
I. Section 401(a)(9) Regulations
A. Section 1.401(a)(9)-1--Minimum Distribution Requirement in General
1. Statutory Effective Date of the Limitation on Beneficiary Life
Expectancy Distributions
Proposed Sec. 1.401(a)(9)-1 provides general rules that apply for
all of the regulations under section 401(a)(9), including rules
addressing application of the effective date of new section
401(a)(9)(H), which was added by section 401 of the SECURE Act to limit
life expectancy distributions for beneficiaries. Generally, the
amendments made by section 401 of the SECURE Act apply to distributions
with respect to an employee who dies on or after January 1, 2020 (with
a later effective date for certain collectively bargained plans or
governmental plans). In addition, if an employee in a plan died before
the section 401(a)(9)(H) effective date for that plan, the employee had
only one designated beneficiary, and the employee's designated
beneficiary dies on or after that effective date, then the amendments
made by section 401 of the SECURE Act apply to any beneficiary of the
designated beneficiary. In this situation, the designated beneficiary
is treated as an eligible designated beneficiary for purposes of the
10-year payout required by section 401(a)(9)(H)(iii). Accordingly, the
death of the designated beneficiary triggers a requirement to complete
payment within 10 years of the death of that designated beneficiary. In
contrast, if that designated beneficiary died before that effective
date, then the amendments made by section 401 of the SECURE Act do not
apply with respect to the employee's interest under the plan.
These proposed regulations provide that if an employee in a plan
who dies before the section 401(a)(9)(H) effective date for that plan
has more than one designated beneficiary, whether the amendments made
by section 401 of the SECURE Act apply depends on when the oldest of
those beneficiaries dies. Thus, for example, if an employee who died
before January 1, 2020, named a see-through trust as the sole
beneficiary of the employee's interest in the plan, and the trust has
three beneficiaries who are all individuals, then the amendments made
by section 401 of the SECURE Act will apply with respect to
distributions to the trust upon the death of the oldest trust
beneficiary, but only if that beneficiary dies on or after the section
401(a)(9)(H) effective date for that plan. However, if the oldest of
the trust beneficiaries died before that effective date, then the
amendments made by section 401 of the SECURE Act do not apply with
respect to distributions to the trust.
For purposes of applying the statutory effective date, these
proposed regulations provide that if, pursuant to section
401(a)(9)(B)(iv), a surviving spouse is waiting to begin distributions
until the year for which the employee would have been first required to
take distributions, then the spouse is treated as the employee. Thus,
in that case, if the spouse died before January 1, 2020, but the
spouse's designated beneficiary dies after the section 401(a)(9)(H)
effective date for the plan, section 401(a)(9)(H) applies to any
beneficiary of the spouse's designated beneficiary
[[Page 10508]]
upon the death of that designated beneficiary.
These proposed regulations reflect the statutory delay of the
effective date for governmental plans and collectively bargained plans.
For this purpose, the determination of whether a plan is a collectively
bargained plan is made in accordance with Sec. 1.436-1(a)(5)(ii)(B)
(relating to plans under which some participants are not members of
collective bargaining units). The proposed regulations also reflect the
exception for existing annuity contracts for which an irrevocable
election as to the method and the amount of the annuity payments was
made before December 20, 2019, as described in section 401(b)(4) of the
SECURE Act.
2. Participants in Multiple Plans
These proposed regulations provide that if an employee is a
participant in more than one plan, the plans in which the employee
participates are not permitted to be aggregated for purposes of testing
whether the distribution requirements of section 401(a)(9) are met.
This rule is currently in Sec. 1.401(a)(9)-8, Q&A-1, but is moved to
Sec. 1.401(a)(9)-1(a)(2) in these proposed regulations.
B. Section 1.401(a)(9)-2--Distributions Commencing During an Employee's
Lifetime
Proposed Sec. 1.401(a)(9)-2 provides rules for determining the
required beginning date for distributions and whether distributions are
treated as having begun during an employee's lifetime. These rules are
based on the rules in the existing regulations, except that the rules
have been updated to reflect the amendments to the required beginning
date made by section 114 of the SECURE Act.
In accordance with section 114(a) of the SECURE Act, these proposed
regulations generally provide that the required beginning date is April
1 of the calendar year following the later of (1) the calendar year in
which the employee attains age 72, and (2) the calendar year in which
the employee retires from employment with the employer maintaining the
plan. These proposed regulations also provide that for an employee who
was born before July 1, 1949, the required beginning date remains April
1 of the calendar year following the later of (1) the calendar year in
which the employee attains age 70\1/2\, and (2) the calendar year in
which the employee retires from employment with the employer
maintaining the plan. However, if an employee is a 5-percent owner,
then the required beginning date is April 1 of the calendar year
following the calendar year in which the employee attains age 70\1/2\
or 72 (whichever required beginning date applies to the employee as
determined using the employee's date of birth), and that required
beginning date applies regardless of whether the employee has retired
from employment with the employer maintaining the plan.
Section 114(d) of the SECURE Act provides that the amended
definition of the required beginning date applies with respect to
employees who attain age 70\1/2\ on or after January 1, 2020. This
effective date provision could be interpreted to require the employee
to survive until age 70\1/2\ in order to have the amended definition
apply (that is, if the employee died before attaining age 70\1/2\, then
the amended definition would not apply with respect to distributions to
that employee's beneficiary, even if the employee would have attained
age 70\1/2\ on or after January 1, 2020, had the employee survived).
Instead, for ease of administration, these proposed regulations
interpret the effective date language to apply the amendments made by
section 114 of the SECURE Act to an employee who died before attaining
age 70\1/2\ if the employee would have attained age 70\1/2\ on or after
January 1, 2020 (that is, the employee's date of birth is on or after
July 1, 1949). This interpretation also extends to a surviving spouse
who is waiting to begin distributions pursuant to section
401(a)(9)(B)(iv). Thus, for example, if an employee who was born on
June 1, 1952, died in 2018, and the employee's sole beneficiary is the
employee's surviving spouse, then the surviving spouse may wait until
2024 (the calendar year in which the employee would have attained age
72) to begin receiving distributions.
C. Section 1.401(a)(9)-3--Death Before Required Beginning Date
Proposed Sec. 1.401(a)(9)-3 provides rules for distributions if an
employee dies before the employee's required beginning date. These
rules are based on the rules in the existing regulations but are
updated to reflect new section 401(a)(9)(H). Because section
401(a)(9)(H) applies only to defined contribution plans, the rules for
distributions from defined benefit plans and defined contribution plans
have been separated, with the rules for distributions from defined
benefit plans set forth in proposed Sec. 1.401(a)(9)-3(b) and the
rules for distributions from defined contribution plans set forth in
proposed Sec. 1.401(a)(9)-3(c).
Section 401(a)(9)(H)(i) provides for a new 10-year distribution
period in certain cases (10-year rule). Specifically, in the case of a
defined contribution plan, if an employee who has a designated
beneficiary dies before the employee's required beginning date, then
section 401(a)(9)(B)(ii) is satisfied if the employee's entire interest
is distributed by the end of the calendar year that includes the tenth
anniversary of the employee's death. This 10-year rule is similar to
the 5-year rule in the existing regulations (under which distributions
may be delayed until the end of the fifth calendar year following the
calendar year of the employee's death if the employee dies before the
required beginning date) and permits distributions to be delayed until
the end of the tenth calendar year following the calendar year of the
employee's death if the employee dies before the required beginning
date.
The 5-year rule is retained in these proposed regulations and
continues to apply to a defined benefit plan. It also applies to a
defined contribution plan if section 401(a)(9)(H) does not apply to the
employee (which could occur if the employee does not have a designated
beneficiary or if the employee died before the effective date of
section 401(a)(9)(H) and the employee's designated beneficiary elected
the 5-year rule).
These proposed regulations retain the rule that permits an
employee's interest to be distributed over the designated beneficiary's
life or life expectancy in accordance with section 401(a)(9)(B)(iii)
(life expectancy payments rule). However, pursuant to section
401(a)(9)(H)(ii), in the case of a defined contribution plan, that rule
is available only if the designated beneficiary is an eligible
designated beneficiary as defined in section 401(a)(9)(E)(ii). Thus, in
the case of a defined contribution plan, if the employee dies before
the required beginning date and the employee's designated beneficiary
is not an eligible designated beneficiary, the 10-year rule applies.
These proposed regulations also provide that in the case of a
defined contribution plan, if the employee has a designated beneficiary
who is an eligible designated beneficiary, the plan may provide either
that the 10-year rule applies or that the life expectancy payments rule
applies. Alternatively, the plan may provide the employee or the
eligible designated beneficiary an election between the 10-year rule or
the life expectancy payments rule. However, if a defined contribution
plan does not include either of those optional provisions and the
employee has an eligible designated beneficiary, the plan
[[Page 10509]]
must provide for the life expectancy payments rule.
D. Section 1.401(a)(9)-4--Determination of the Designated Beneficiary
Proposed Sec. 1.401(a)(9)-4 provides rules addressing the
determination of the employee's beneficiary for purposes of section
401(a)(9) and these proposed regulations are substantially similar to
the rules in the existing regulations. In addition to providing rules
addressing the new definition of eligible designated beneficiary, these
proposed regulations include rules that clarify and simplify the
determination of a beneficiary for purposes of section 401(a)(9) in
certain situations involving the use of a trust.
A designated beneficiary within the meaning of section
401(a)(9)(E)(i) generally is an individual designated under the plan as
a beneficiary who is entitled to a portion of an employee's benefit,
contingent on the employee's death or another specified event. If a
beneficiary designated under the plan is a person other than an
individual, then the employee is treated as not having a designated
beneficiary (even if there is an individual who is designated as a
beneficiary under the plan). However, if a beneficiary designated under
the plan is a see-through trust as described in Section I.D.2 of this
Explanation of Provisions, then certain beneficiaries of that trust are
treated as the employee's beneficiaries under the plan rather than the
trust. In addition, designating a person that is not an individual as a
beneficiary under the plan does not cause the employee to be treated as
not having a designated beneficiary to the extent separate account
treatment applies with respect to that person as described in Section
I.H of this Explanation of Provisions.
1. Eligible Designated Beneficiaries
These proposed regulations incorporate the new definition of
eligible designated beneficiary in section 401(a)(9)(E)(ii).
Specifically, an eligible designated beneficiary is a designated
beneficiary who, as of the date of the employee's death, is (1) the
surviving spouse of the employee, (2) a child of the employee who has
not yet reached the age of majority, (3) disabled, (4) chronically ill,
or (5) not more than 10 years younger than the employee.
a. Definition of Age of Majority
Section 401(a)(9)(E)(ii)(II) provides that if the employee's
designated beneficiary, as of the date of the employee's death, is a
child of the employee who has not yet reached the age of majority (as
defined in section 401(a)(9)(F)), then that child is an eligible
designated beneficiary. Section 1.401(a)(9)-6, A-15, of the existing
regulations provides guidance regarding the application of section
401(a)(9)(F). That regulatory provision does not specify a particular
age as a generally applicable age of majority, but provides that a
child may be treated as having not reached the age of majority if the
child has not completed a specified course of education and is under
the age of 26.
The Treasury Department and the IRS have determined that it is
necessary to revise the definition of age of majority from the
definition used under the existing regulations (the pre-SECURE Act
application of which is limited to defined benefit plans and rarely
applied). As more plans are expected to apply an age of majority
definition, plans may find it difficult to implement the existing
standard under which the plan administrator obtains information about
the education of an employee's child for purposes of applying section
401(a)(9)(H). Furthermore, because the definition of age of majority is
intended to apply to all of an individual's accounts in defined
contribution plans, which may be in multiple qualified plans and IRAs,
the Treasury Department and the IRS have concluded that the definition,
which will determine whether a designated beneficiary is an eligible
designated beneficiary across plans and accounts, should not be a plan
design choice. The potential for different plans to have different
definitions would lead to confusion and complexity for individuals in
planning and for their beneficiaries, as well as plan administrators
and custodians, in determining payment streams. Accordingly, for
purposes of section 401(a)(9)(E)(ii)(II) and (F), these proposed
regulations provide that a child of the employee reaches the age of
majority on that child's 21st birthday (which accommodates the age of
majority definition in all of the States). However, as described in
Section I.F of this Explanation of Provisions, the proposed regulations
permit defined benefit plans that have used the prior definition of age
of majority to retain that plan provision.
b. Definition of Disability
These proposed regulations provide rules for the determination of
whether an individual is disabled for purposes of section 401(a)(9).
Section 401(a)(9)(E)(ii)(III) applies the definition of disability
under section 72(m)(7) for purposes of section 401(a)(9). Section
72(m)(7) provides a standard of disability based on whether an
individual is unable to engage in substantial gainful activity.
However, for individuals under age 18, that standard may be difficult
to apply. Accordingly, if, as of the date of the employee's death, a
beneficiary is younger than age 18, the proposed regulations apply a
comparable standard that requires the beneficiary to have a medically
determinable physical or mental impairment that results in marked and
severe functional limitations, and that can be expected to result in
death or to be of long-continued and indefinite duration.
These proposed regulations also provide a safe harbor for the
determination of whether a beneficiary is disabled. Specifically, if,
as of the date of the employee's death, the Commissioner of Social
Security has determined that the individual is disabled within the
meaning of 42 U.S.C. 1382c(a)(3), then that individual will be deemed
to be disabled for purposes of section 401(a)(9).
Pursuant to section 401(a)(9)(E)(ii), the determination of whether
a beneficiary is disabled is made as of the date of the employee's
death. For example, if, as of the employee's death, the employee's
designated beneficiary is the employee's 10-year-old child who is not
disabled but who becomes disabled 5 years after the employee's death,
then pursuant to section 401(a)(9)(E)(iii) and these proposed
regulations, that child's later disability will not be taken into
account, and that child will cease to be an eligible designated
beneficiary on the child's 21st birthday.
c. Documentation Requirements for Disabled or Chronically Ill Status
These proposed regulations provide that, with respect to a
beneficiary who is disabled or chronically ill as of the date of the
employee's death, documentation of the disability or chronic illness
must be provided to the plan administrator no later than October 31 of
the calendar year following the calendar year of the employee's death.
If the designated beneficiary is chronically ill under any of the
definitions in section 7702B(c)(2)(A) as of the date of the employee's
death, the documentation must include a certification by a licensed
health care practitioner (as defined in section 7702B(c)(4)) that the
designated beneficiary is chronically ill. Additionally, in accordance
with section 401(a)(9)(E)(ii)(IV), if the beneficiary is chronically
ill under the definition in section 7702B(c)(2)(A)(i), then the
documentation also must include a certification from a licensed health
care practitioner that, as of the date of the certification, the
individual
[[Page 10510]]
is unable to perform (without substantial assistance from another
individual) at least 2 activities of daily living for an indefinite
period that is reasonably expected to be lengthy in nature.
For a designated beneficiary who is an eligible designated
beneficiary because, at the time of the employee's death, the
designated beneficiary is the employee's minor child and that child
also is disabled or chronically ill within the meaning of these
proposed regulations, the designated beneficiary will continue to be
treated as an eligible designated beneficiary after reaching the age of
majority (on account of being disabled or chronically ill) only if
these documentation requirements are timely met with respect to that
designated beneficiary. Similarly, if the employee's designated
beneficiary is the employee's surviving spouse and that spouse also is
disabled or chronically ill at the time of the employee's death, then
the surviving spouse will be treated as disabled or chronically ill for
purposes of the applicable multi-beneficiary trust rules only if the
documentation requirements are timely met with respect to the surviving
spouse.
d. Other Rules Related to Eligible Designated Beneficiaries
These proposed regulations provide that, if an employee has more
than one designated beneficiary and one of them is not an eligible
designated beneficiary, then for purposes of section 401(a)(9), the
employee generally is treated as not having an eligible designated
beneficiary. In addition, these proposed regulations provide that if
the surviving spouse is waiting to begin distributions until the year
in which the employee would have attained age 72 and the surviving
spouse dies before the beginning of that year, then the determination
of whether the surviving spouse's designated beneficiary is an eligible
designated beneficiary is made by substituting the surviving spouse for
the employee (including for purposes of establishing the date as of
which that determination is made). For example, a child of the
surviving spouse is an eligible designated beneficiary if the child has
not yet reached the age of majority as of the date of the surviving
spouse's death.
2. Trust as Beneficiary
These proposed regulations retain the see-through trust concept in
the existing regulations under which certain beneficiaries of a trust
are treated as beneficiaries of the employee if the trust meets the
requirements to be a see-through trust. Specifically, to be a see-
through trust, the trust must meet the following requirements: (1) The
trust is valid under state law or would be valid but for the fact that
there is no corpus; (2) the trust is irrevocable or will, by its terms,
become irrevocable upon the death of the employee; (3) the
beneficiaries of the trust who are beneficiaries with respect to the
trust's interest in the employee's benefit are identifiable; and (4)
the specified documentation requirements are satisfied.
In response to issues raised in private letter ruling requests and
comments submitted to the Treasury Department and the IRS, these
proposed regulations provide additional guidance in determining which
beneficiaries of the see-through trust are treated as beneficiaries of
the employee.\5\ These proposed rules are consistent with the examples
that are in Sec. 1.401(a)(9)-5, Q&A-7(c), of the existing regulations,
but address many more fact patterns. The Treasury Department and the
IRS intend for these more detailed rules to address many of the issues
raised in comment letters and private letter ruling requests and expect
that this more comprehensive and definitive guidance will minimize the
need for taxpayers to request private letter rulings.
---------------------------------------------------------------------------
\5\ These proposed regulations provide for the determination of
the trust beneficiaries that are treated as beneficiaries of the
employee in Sec. 1.401(a)(9)-4(f). In the existing regulations,
these provisions were in Sec. 1.401(a)(9)-5.
---------------------------------------------------------------------------
a. Determining Which See-Through Trust Beneficiaries Are Treated as
Beneficiaries of the Employee
1. See-Through Trust Beneficiaries Taken Into Account
Generally, the proposed regulations provide that a beneficiary of a
see-through trust is treated as a beneficiary of the employee if the
beneficiary could receive amounts in the trust representing the
employee's interest in the plan that are neither contingent upon nor
delayed until the death of another trust beneficiary who does not
predecease (and is not treated as having predeceased) \6\ the employee.
---------------------------------------------------------------------------
\6\ For purposes of this rule, a beneficiary is treated as
having predeceased the employee if the beneficiary is treated as
predeceasing the employee pursuant to a simultaneous death provision
or a qualified disclaimer.
---------------------------------------------------------------------------
Whether any other see-through trust beneficiary also is treated as
a beneficiary of the employee depends upon whether the see-through
trust is a conduit trust or accumulation trust. A conduit trust is
defined in the proposed regulations as a see-through trust, the terms
of which provide that all plan distributions will, upon receipt by the
trustee, be paid directly to, or for the benefit of, specified
beneficiaries. A see-through trust will not fail to be a conduit trust
merely because the trust terms do not require an immediate distribution
after the death of all of the specified beneficiaries described in the
preceding sentence.
For example, if an employee names a conduit trust as the
beneficiary of the employee's interest in a plan and the trust terms
require all distributions from the plan to the trust during the
surviving spouse's life to be distributed immediately to that surviving
spouse, then the surviving spouse is treated as a beneficiary of the
employee because the surviving spouse could receive amounts in the
trust that are neither contingent upon nor delayed until the death of
another trust beneficiary. In this case, if distributions have begun
from the plan and the surviving spouse dies before the employee's
entire interest is distributed, any beneficiary who could receive
distributions from the conduit trust at the time of the surviving
spouse's death is not treated as a beneficiary of the employee because
that beneficiary's ability to receive amounts from the trust is
contingent upon the death of the surviving spouse.
An accumulation trust is any see-through trust that is not a
conduit trust, and under an accumulation trust, there are potentially
more beneficiaries. A beneficiary of an accumulation trust is treated
as a beneficiary of the employee if that beneficiary has a residual
interest in the portion of the trust representing the employee's
interest in the plan (that is, the beneficiary could receive amounts in
the trust, representing the employee's interest in the plan, that were
not distributed to individuals described in the first paragraph of this
Section I.D.2.a.1). For example, assume an employee names a see-through
trust as the sole beneficiary of the employee's interest in the plan.
The terms of the see-through trust require the trustee to pay specified
amounts from the trust to the employee's surviving spouse, and those
specified amounts do not include the immediate payment of plan
distributions made to the trust. Upon the spouse's death, the see-
through trust is to terminate and the amounts remaining in the trust
are to be paid to the employee's brother. The surviving spouse is
treated as a beneficiary of the employee (because the surviving spouse
could receive amounts in the see-through trust that are neither
contingent upon nor delayed until the death of another trust
beneficiary). Moreover, because not all distributions from the plan to
the see-through trust are immediately distributed to a trust
[[Page 10511]]
beneficiary, the trust is an accumulation trust. As a result, the
employee's brother is treated as a beneficiary of the employee because
he has a residual interest in the see-through trust (that is, he could
receive amounts in the trust representing the employee's interest in
the plan that were not distributed to the surviving spouse).
2. Disregarded Beneficiaries of See-Through Trusts
These proposed regulations also provide for certain beneficiaries
of a see-through trust to be disregarded as beneficiaries of the
employee for purposes of section 401(a)(9), because they have only
minimal or remote interests. Specifically, a see-through trust
beneficiary is not treated as a beneficiary of the employee if that
beneficiary could receive payments from the trust that represent the
employee's interest in the plan only after the death of another trust
beneficiary whose sole interest is a residual interest in the trust (as
described in the preceding paragraph) and who did not predecease (and
is not treated as having predeceased) the employee. Thus, using the
example in the preceding paragraph, assume the see-through trust terms
provide that if the employee's brother survives the employee but
predeceases the surviving spouse, then the amounts remaining in the
trust after the death of the surviving spouse are to be paid to a
charity. In that case, the charity is disregarded as a beneficiary of
the employee because the charity could receive only amounts in the
trust that are contingent upon the death of the employee's brother,
whose only interest was a residual interest (that is, an interest in
the amounts remaining in the trust after the death of the surviving
spouse). In contrast, the charity would be treated as a beneficiary of
the employee if the brother could receive amounts in the trust not
subject to any contingencies or contingent upon an event other than the
death of the surviving spouse (such as the surviving spouse's
remarriage).
These proposed regulations provide another exception under which a
see-through trust beneficiary with a residual interest is disregarded
as a beneficiary of the employee because the beneficiary would have
only a minimal or remote interest in the trust. These proposed
regulations provide that if the see-through trust terms require a full
distribution of amounts in the trust representing the employee's
interest in the plan to a specified individual described in the first
paragraph of Section I.D.2.a.1 of this Explanation of Provisions by the
later of: (1) The calendar year following the calendar year of the
employee's death; and (2) the end of the tenth calendar year following
the calendar year in which that specified individual attains the age of
majority, then any other beneficiary whose sole entitlement to
distributions is conditioned on the unlikely event that specified
individual dies before the full distribution is required is disregarded
as a beneficiary of the employee.
To illustrate this exception, assume an employee names a see-
through trust as the sole beneficiary, the trust permits specified
amounts to be paid to the employee's niece until the niece reaches age
31 (age of majority plus 10 years), and those specified amounts are not
required to include the immediate payment of plan distributions made to
the trust. The trust is scheduled to terminate with a full distribution
of all trust assets to the niece when the niece reaches age 31, but if
the niece dies before this scheduled termination, then the amounts
remaining in the trust will be paid to the employee's sibling. In that
case, the only beneficiary designated under the plan for purposes of
section 401(a)(9) and these regulations is the employee's niece because
the employee's sibling is disregarded under the exception described in
the preceding paragraph. However, if the see-through trust terms do not
require a full distribution of amounts in the trust representing the
employee's interest in the plan until the niece reaches age 35, then
this exception does not apply, and both the employee's niece and
sibling are treated as beneficiaries designated under the plan for
purposes of section 401(a)(9) and these regulations.
b. Identifiability of Trust Beneficiaries
These proposed regulations retain the requirement from the existing
regulations that the employee's beneficiaries (including beneficiaries
of a see-through trust) be identifiable, but modify the definition of
identifiability in light of the enactment of section 401(a)(9)(H).
Generally, trust beneficiaries are identifiable if it is possible to
identify each person designated by the employee as eligible to receive
a portion of the employee's interest in the plan through the trust.
Under the proposed regulations, if an employee names a class of
individuals as the beneficiary (such as the employee's grandchildren),
the addition of another member of that class (for example, the birth of
another grandchild) will not cause the trust to fail to meet the
identifiability requirements.
These proposed regulations provide another exception to the general
identifiability rule under which a trust will not fail to satisfy the
identifiability requirements merely because an individual has a power
of appointment with respect to a portion of the employee's interest in
the plan. Specifically, these proposed regulations provide that if, by
September 30 of the calendar year following the calendar year of the
employee's death, the power is exercised in favor of one or more
beneficiaries that are identifiable or is restricted so that any
appointment made at a later time may only be made in favor of one or
more identifiable beneficiaries, then all of those identifiable
beneficiaries are taken into account as beneficiaries of the employee.
If the power is not exercised by that September 30 in favor of one or
more beneficiaries that are identifiable (and is not so restricted)
then each taker in default (that is, each person who would be entitled
to the portion subject to the power if that power is not exercised) is
treated as a beneficiary of the employee.
These proposed regulations include a rule that applies when a
beneficiary is added who was not initially taken into account in
determining the employee's beneficiaries. Under this rule, if a
beneficiary is added after September 30 of the calendar year following
the calendar year of the employee's death (for example, if an
individual exercises a power of appointment after that September 30),
then the determination of whether there is no designated beneficiary
because one of the employee's beneficiaries is not an individual, and
the rules relating to multiple designated beneficiaries described in
Sections I.D.1.d and I.E.3.d of this Explanation of Provisions must be
applied taking into account the new beneficiary along with all of the
beneficiaries that were taken into account before the addition of the
new beneficiary. However, if the addition of the beneficiary would
cause a full distribution of the employee's interest in the plan to be
required pursuant to section 401(a)(9)(H) during the calendar year in
which the beneficiary is added or in an earlier calendar year (and a
full distribution would not have been required in the absence of the
new beneficiary), then the proposed regulations provide that the full
distribution is not required until the end of the calendar year
following the calendar year in which the beneficiary was added.
To illustrate this rule, assume an employee named a see-through
trust as the beneficiary of the employee's
[[Page 10512]]
interest in the plan, the terms of the trust require the trustee to pay
specified amounts from the trust to the employee's surviving spouse,
and those specified amounts do not require the immediate payment of
plan distributions made to the trust. In this case, the trust is an
accumulation trust. The trust terms also provide the spouse with a
testamentary power of appointment to name the beneficiary of any
portion of the employee's interest in the plan that has not been
distributed before the surviving spouse dies, but in the absence of an
appointment, the employee's only child is entitled to that residual
interest in the trust. If the power of appointment is not exercised by
September 30 of the calendar year following the calendar year of the
employee's death, then the trust does not fail to satisfy the
identifiability requirements, and both the employee's surviving spouse
and child are treated as beneficiaries of the employee. If, after that
September 30, the surviving spouse exercises the power by naming the
spouse's sibling as the beneficiary of the residual interest in the
trust, then the employee's surviving spouse, the employee's child, and
the spouse's sibling are all taken into account when applying the rules
for multiple designated beneficiaries for each calendar year after the
year during which the sibling is added as a beneficiary.
These proposed regulations also provide that a see-through trust
will not fail to satisfy the identifiability requirements merely
because the trust is subject to state law that permits the trust terms
to be modified after the death of the employee (such as by a court
reformation, through a decanting, or otherwise), thus permitting a
change in the beneficiaries of the trust. If a beneficiary of a see-
through trust is removed through a modification of the trust terms by
September 30 of the calendar year following the calendar year of the
employee's death, the proposed regulations provide that the beneficiary
that was removed is disregarded as a beneficiary of the employee for
purposes of section 401(a)(9) and these regulations. Similarly, if a
beneficiary is added pursuant to such a modification, that beneficiary
is taken into account as a beneficiary of the employee for purposes of
section 401(a)(9) and these regulations. However, if a beneficiary is
added pursuant to such a modification after that September 30, then the
rules that apply to a beneficiary that is added pursuant to a power of
appointment will apply also to a beneficiary that is added pursuant to
the modification.
c. Applicable Multi-Beneficiary Trusts
These proposed regulations also provide guidance on a particular
type of see-through trust defined in section 401(a)(9)(H)(v) as an
applicable multi-beneficiary trust. Specifically, these proposed
regulations define two types of applicable multi-beneficiary trusts. A
type I applicable multi-beneficiary trust is an applicable multi-
beneficiary trust, the terms of which provide that the trust is to be
divided immediately upon the death of the employee into separate trusts
for each beneficiary (as described in section 401(a)(9)(H)(iv)(I)). A
type II applicable multi-beneficiary trust is an applicable multi-
beneficiary trust, the terms of which provide that no individual other
than a disabled or chronically ill eligible designated beneficiary has
any right to the employee's interest in the plan until the death of all
such eligible designated beneficiaries with respect to the trust (as
described in section 401(a)(9)(H)(iv)(II)).
When dividing a type I applicable multi-beneficiary trust, one of
the separate trusts could be a type II applicable multi-beneficiary
trust. Thus, if a type I applicable multi-beneficiary trust is divided
into separate trusts and one of the separate trusts satisfies the
requirements to be a type II applicable multi-beneficiary trust, then
the beneficiaries of that separate trust who are not disabled or
chronically ill are disregarded as beneficiaries of the employee for
purposes of section 401(a)(9) and these regulations. However, for any
separate trust that does not satisfy the requirements to be a type II
applicable multi-beneficiary trust, the beneficiaries of that separate
trust are treated as beneficiaries of the employee for purposes of
section 401(a)(9) and these regulations.
The Treasury Department and the IRS are aware of concerns related
to the application of the amendments made by section 401 of the SECURE
Act to section 401(a)(9) of the Code in the case of a trust with terms
intended to ensure that a disabled individual who is a beneficiary of
the trust remains eligible for means-tested government benefits. The
Treasury Department and the IRS request comments on whether under
applicable law a trust for a disabled individual (for example, a
supplemental needs trust) could include terms providing that the
disabled individual would lose the individual's interest in the trust
in the event the interest would disqualify the individual for means-
tested government benefits and still satisfy the requirements under the
Code to be a type II applicable multi-beneficiary trust. Specifically,
comments are requested on whether this type of provision may be
included in a trust (thereby allowing a disabled individual to continue
to qualify for means-tested government benefits), while not providing
for trust payments to any other beneficiary until the death of the
disabled individual.
3. Other Rules Related to Designated Beneficiaries.
a. Special Rules for Multiple Designated Beneficiaries
As described in the first paragraph of Section I.D.1.d of this
Explanation of Provisions, these proposed regulations provide a general
rule under which, if an employee has more than one designated
beneficiary, and at least one of them is not an eligible designated
beneficiary, then for purposes of section 401(a)(9), the employee is
treated as not having an eligible designated beneficiary. As a result,
the employee's interest must be distributed no later than the end of
the tenth calendar year following the calendar year of the employee's
death.
These proposed regulations include two exceptions to this general
rule that allow an eligible designated beneficiary to use the life
expectancy rule even if there is another designated beneficiary who is
not an eligible designated beneficiary. The first exception is that if
any of the employee's designated beneficiaries is a child of the
employee who, as of the date of the employee's death, has not yet
reached the age of majority, then the employee is still treated as
having an eligible designated beneficiary (which allows payments to
continue until 10 years after the child reaches the age of majority
even if there are other designated beneficiaries who are not eligible
designated beneficiaries). The second exception is if the see-through
trust is a type II applicable multi-beneficiary trust, then the
beneficiaries who either are disabled or chronically ill are treated as
eligible designated beneficiaries without regard to whether any of the
other trust beneficiaries are not eligible designated beneficiaries.
To illustrate these rules, if an employee who is a participant in a
defined contribution plan names a see-through trust as the sole
beneficiary of the employee's interest in the plan, and the trust
beneficiaries are the employee's surviving spouse and the employee's
adult child who is not disabled or chronically ill, then the employee
is treated as not having an eligible designated beneficiary. As a
[[Page 10513]]
result, the employee's entire interest must be distributed no later
than 10 years after the employee's death. However, if there is another
designated beneficiary who is the employee's child and who, as of the
date of the employee's death, has not yet reached the age of majority,
then, under the exception described in the preceding paragraph, the
employee is treated as having an eligible designated beneficiary. In
that second situation, if the trust is receiving annual distributions
using the life expectancy rule, then a full distribution from the plan
would not be required until ten years after the minor child reaches the
age of majority.
b. Determining the Beneficiary for Purposes of Calculating the Required
Minimum Distribution
These proposed regulations largely retain the rules of the existing
regulations related to determining who is a beneficiary for purposes of
section 401(a)(9), so that a person is a beneficiary if that person is
a beneficiary designated under the plan as of the date of the
employee's death and remains a beneficiary as of September 30 of the
calendar year following the calendar year in which the employee died.
For this purpose, a beneficiary need not be specified by name in order
to be designated under the plan, provided the beneficiary is
identifiable pursuant to the designation.
The existing regulations provide that a beneficiary is disregarded
if certain events occur before September 30 of the calendar year
following the calendar year in which the employee dies. In response to
issues raised in private letter ruling requests and comments submitted
to the Treasury Department and the IRS, these proposed regulations
provide an exclusive list of events that permit a beneficiary to be
disregarded. Specifically, the proposed regulations provide that if any
of the following events occurs by September 30 of the calendar year
following the calendar year in which the employee dies with respect to
a person who was a beneficiary as of the employee's date of death, then
that person will be disregarded in identifying the beneficiaries of the
employee for purposes of section 401(a)(9): (1) The individual
predeceases the employee; (2) the individual is treated as having
predeceased the employee pursuant to a simultaneous death provision or
pursuant to a qualified disclaimer that satisfies section 2518 and
applies to the entire interest to which the beneficiary is entitled; or
(3) the person receives the entire benefit to which the person is
entitled.
To illustrate the rule in the preceding paragraph, if an individual
makes a disclaimer satisfying section 2518 that applies to the
individual's entire interest (including the requirement that the
disclaimer be made within 9 months of the employee's death), that
individual is not treated as a beneficiary for purposes of section
401(a)(9). However, if the disclaimer is executed more than 9 months
after the employee's death, then that individual will not be
disregarded for purposes of identifying the beneficiaries. As another
example, assume a see-through trust is designated as a beneficiary of
the employee's interest in the plan and that trust could be liable for
expenses of administering and distributing the deceased employee's
estate at death. In this case, the decedent's estate is treated as a
beneficiary of the employee designated under the plan because some
portion of the employee's interest in the plan may be used for the
payment of those administration expenses, thus satisfying an obligation
of the estate. However, if all of those expenses that could be paid
from the employee's interest in the plan are paid by September 30 of
the calendar year following the calendar year in which the employee
died (so that by that date, the deceased employee's estate received the
entire interest to which it was entitled), then the deceased employee's
estate is disregarded, and the other beneficiaries of the see-through
trust are considered beneficiaries of the employee.
E. Section 1.401(a)(9)-5--Required Minimum Distributions From Defined
Contribution Plans
1. In General
Proposed Sec. 1.401(a)(9)-5 retains the general method in the
existing regulations by which a required minimum distribution from a
defined contribution plan is calculated in any calendar year when an
employee dies on or after the required beginning date or when an
employee's eligible designated beneficiary is taking life expectancy
payments after an employee dies before the required beginning date.
Specifically, the required minimum distribution for a calendar year is
determined by dividing the employee's account balance as of the end of
the prior year by an applicable divisor. The existing regulations refer
to the divisor as the applicable distribution period. However, in light
of the amendments made by section 401 of the SECURE Act that may result
in different distribution periods, these proposed regulations refer to
the divisor as the applicable denominator. In addition to the
requirement to take annual required minimum distributions, the proposed
regulations implement those amendments by requiring that a full
distribution of the remaining interest be taken in certain
circumstances.
These proposed regulations also update the list of amounts of
distributions and deemed distributions that are not taken into account
in determining whether the required minimum distribution has been made
for a calendar year. Under the proposed regulations, that list is
implemented by a cross-reference to a list of amounts in Sec.
1.402(c)-2(c)(3) (relating to amounts that are not treated as eligible
rollover distributions). The effect of the new cross-reference is to
add the following items to the list of amounts that are disregarded for
purposes of determining the required minimum distribution from a
defined contribution plan: Prohibited allocations that are treated as
deemed distributions pursuant to section 409(p), distributions of
premiums for health and accident insurance, deemed distributions with
respect to a collectible pursuant to section 408(m), and distributions
that are permissible withdrawals from an eligible automatic
contribution arrangement within the meaning of section 414(w).
2. Distributions While the Employee Is Alive
These proposed regulations provide that, in determining the
required minimum distribution for a distribution calendar year
beginning while the employee is alive, the employee divides the account
balance as of December 31 of the preceding calendar year by the
employee's applicable denominator. Generally, the applicable
denominator is determined using the Uniform Lifetime Table in Sec.
1.401(a)(9)-9(c). However, if the employee's sole beneficiary is the
employee's spouse who is more than 10 years younger than the employee,
then the applicable denominator is determined using the Joint and Last
Survivor Table in Sec. 1.401(a)(9)-9(d) (providing for a longer payout
period).
3. Distributions After the Employee's Death
a. Requirement To Satisfy Both Section 401(a)(9)(B)(i) and (ii) in the
Case of an Employee Who Dies on or After the Required Beginning Date
Section 401(a)(9)(B)(i) provides rules that apply if an employee
dies after benefits have commenced. While the 5-year rule under section
401(a)(9)(B)(ii)
[[Page 10514]]
(expanded to a 10-year rule in certain cases by section
401(a)(9)(H)(i)(I)) generally applies if an employee dies before the
employee's required beginning date, section 401(a)(9)(H)(i)(II)
provides that section 401(a)(9)(B)(ii) applies whether or not
distributions have commenced. Accordingly, if an employee dies after
the required beginning date, distributions to the employee's
beneficiary for calendar years after the calendar year in which the
employee died must satisfy section 401(a)(9)(B)(i) as well as section
401(a)(9)(B)(ii). In order to satisfy both of these requirements, these
proposed regulations provide for the same calculation of the annual
required minimum distribution that was adopted in the existing
regulations but with an additional requirement that a full distribution
of the employee's entire interest in the plan be made upon the
occurrence of certain designated events (discussed in section I.E.3.c.
of this Explanation of Provisions).
b. Determination of Applicable Denominator
If an employee died on or after the required beginning date (or the
employee died before the required beginning date and the employee's
eligible designated beneficiary is taking life expectancy distributions
in accordance with section 401(a)(9)(B)(iii) and these proposed
regulations), then for calendar years after the calendar year in which
the employee died, the applicable denominator generally is the
remaining life expectancy of the designated beneficiary. The
beneficiary's remaining life expectancy generally is calculated using
the age of the beneficiary in the year following the calendar year of
the employee's death, reduced by one for each subsequent calendar year.
However, as an exception to these general rules, if the employee's
spouse is the employee's sole beneficiary, then the applicable
denominator during the spouse's lifetime is the spouse's life
expectancy (which reflects a recalculation in accordance with section
401(a)(9)(D)). In this case, for calendar years after the calendar year
in which the spouse died, in determining the required minimum
distribution to the spouse's beneficiary, the applicable denominator is
the spouse's life expectancy calculated in the calendar year in which
the spouse died, reduced by one for each subsequent calendar year.
If the employee has no designated beneficiary, then the applicable
denominator is the employee's life expectancy calculated in the
calendar year in which the employee died, reduced by one for each
subsequent calendar year. This applicable denominator is also used in
the case of an employee who died after the required beginning date and
who was younger than the designated beneficiary.
c. Full Distribution Required in Certain Circumstances
In order to satisfy the 5-year rule of section 401(a)(9)(B)(ii)
(or, if applicable, the exception to that rule in section
401(a)(9)(B)(iii), taking into account section 401(a)(9)(H), and
(E)(iii)), these proposed regulations provide that, if an employee's
interest is in a defined contribution plan to which section
401(a)(9)(H) applies, then the employee's entire interest in the plan
must be distributed by the earliest of the following dates:
(1) The end of the tenth calendar year following the calendar year
in which the employee died if the employee's designated beneficiary is
not an eligible designated beneficiary;
(2) The end of the tenth calendar year following the calendar year
in which the designated beneficiary died if the employee's designated
beneficiary was an eligible designated beneficiary;
(3) The end of the tenth calendar year following the calendar year
in which the beneficiary reaches the age of majority if the employee's
designated beneficiary is the child of the employee who has not yet
reached the age of majority as of the date of the employee's death; and
(4) The end of the calendar year in which the applicable
denominator would have been less than or equal to one if it were
determined using the beneficiary's remaining life expectancy, if the
employee's designated beneficiary is an eligible designated
beneficiary, and if the applicable denominator is determined using the
employee's remaining life expectancy.
For example, if an employee died after the required beginning date
with a designated beneficiary who is not an eligible designated
beneficiary, then the designated beneficiary would continue to have
required minimum distributions calculated using the beneficiary's life
expectancy as under the existing regulations for up to nine calendar
years after the employee's death. In the tenth year following the
calendar year of the employee's death, a full distribution of the
employee's remaining interest would be required.
Similarly, if an employee died after the required beginning date
with an eligible designated beneficiary, then the eligible designated
beneficiary would continue to have required minimum distributions
calculated during the beneficiary's lifetime using the rules under the
existing regulations. However, if the eligible designated beneficiary
dies before the entire interest of the employee is distributed, then
the beneficiary of that eligible designated beneficiary would continue
taking annual distributions using the rules under the existing
regulations for up to nine years after the death of the eligible
designated beneficiary. In the tenth year following the calendar year
of the eligible designated beneficiary's death, a full distribution of
the employee's remaining interest would be required.
If the employee's designated beneficiary is a child of the employee
who, as of the employee's death, has not yet reached the age of
majority, then the child would have annual required minimum
distributions calculated during the child's lifetime using the rules of
the existing regulations. However, those distributions would be
permitted to be paid for up to only nine years after the child reaches
the age of majority with a full distribution of the employee's
remaining interest required in the tenth year following the calendar
year in which the child reaches the age of majority.
As another example, if an employee died at age 75 after the
required beginning date and the employee's non-spouse eligible
designated beneficiary was age 80 at the time of the employee's death,
the applicable denominator would be determined using the employee's
remaining life expectancy. However, these proposed regulations require
a full distribution of the employee's remaining interest in the plan in
the calendar year in which the applicable denominator would have been
less than or equal to one if it were determined using the beneficiary's
remaining life expectancy (even though the applicable denominator for
determining the required minimum distribution is based on the remaining
life expectancy of the employee). In this case, based on the
beneficiary's life expectancy of 11.2 in the year of the employee's
death, a full distribution would be required in the year the
beneficiary reaches age 91 (because in the 11th calendar year after the
employee's death the beneficiary's life expectancy would be less than
or equal to one).
d. Multiple Designated Beneficiaries
These proposed regulations include a modified version of the
general rule adopted in the existing regulations that applies if an
employee has more than one designated beneficiary. Specifically,
instead of determining the applicable
[[Page 10515]]
denominator using the beneficiary with the shortest life expectancy,
these proposed regulations provide that the applicable denominator is
determined using the life expectancy of the oldest designated
beneficiary. The proposed regulations provide that whether a full
distribution is required also generally is determined using the oldest
of the designated beneficiaries. For example, if an employee has
multiple eligible designated beneficiaries who are born in the same
calendar year, then full distribution of the employee's remaining
interest generally is required by the tenth calendar year following the
death of the oldest designated beneficiary.
These general rules for multiple designated beneficiaries are
subject to certain exceptions. Under one exception, if the employee's
beneficiary is a type II applicable multi-beneficiary trust, then only
the disabled and chronically ill beneficiaries of the trust are taken
into account in determining the oldest designated beneficiary. Thus,
the ages of the other beneficiaries are disregarded in determining the
applicable denominator, and the death of the last of the disabled or
chronically ill trust beneficiaries triggers the 10-year payout
requirement under section 401(a)(9)(H)(iii).
Under a second exception to the general rule, if any of the
employee's designated beneficiaries is a child of the employee who has
not yet reached the age of majority as of the date of the employee's
death, then, in applying the requirement to make a full distribution by
the tenth year following the death of the oldest eligible designated
beneficiary, only the employee's children who are designated
beneficiaries and who are under the age of majority at the employee's
date of death are taken into account. Thus, in a situation involving
one or more designated beneficiary children under the age of majority
and one or more older designated beneficiaries, the death of an older
designated beneficiary will not result in a requirement to pay a full
distribution before the oldest child attains the age of majority plus
ten years. In this case, a full distribution of the employee's
remaining interest is not required until the tenth calendar year
following the calendar year in which the oldest child of the employee
who is a designated beneficiary and who had not attained the age of
majority as of the employee's death reaches the age of majority (or, if
earlier, the tenth calendar year following the calendar year of that
child's death).
To illustrate these rules, assume an employee died at the age of 75
after the employee's required beginning date, and the employee named a
see-through trust that is an accumulation trust as the employee's
beneficiary under the plan. The terms of the trust require specified
amounts to be paid to the employee's surviving spouse (who was age 74
at the time of the employee's death). Upon the spouse's death, the
trust will terminate and the amounts remaining in the trust that have
not been paid to the spouse will be paid to the employee's sibling (who
was age 67 at the time of the employee's death). If the employee's
sibling predeceases the surviving spouse, the amounts remaining in the
trust that have not been paid to the surviving spouse will be paid to a
charity. In this case, the charity is disregarded as a beneficiary of
the employee (as described in Section I.D.2.a.2 of this Explanation of
Provisions), and all of the other trust beneficiaries are eligible
designated beneficiaries (a surviving spouse and a beneficiary who is
not more than 10 years younger than the employee). Under these proposed
regulations, required minimum distributions are made to the trust
beginning in the calendar year after the calendar year of the
employee's death using the surviving spouse's remaining life
expectancy, because the surviving spouse is the oldest beneficiary of
the employee. Upon the surviving spouse's death, annual distributions
must continue to the trust using the surviving spouse's remaining life
expectancy in the calendar year of the spouse's death, reduced by one
in each subsequent calendar year. In addition, the entire interest of
the employee must be distributed no later than the tenth calendar year
following the calendar year of the spouse's death.
F. Section 1.401(a)(9)-6--Required Minimum Distributions From Defined
Benefit Plans
Proposed Sec. 1.401(a)(9)-6 provides rules for required minimum
distributions from defined benefit plans and from annuity contracts
that are annuitized to pay benefits under defined contribution plans.
These rules are based on the existing regulations and are updated to
reflect the amendments to section 401(a)(9) of the Code made by section
114 of the SECURE Act regarding the required beginning date and
actuarial increases.
1. Rules Applicable to Defined Benefit Plans
a. Actuarial Increase for Employees Retiring After Age 70\1/2\
These proposed regulations address the actuarial increase required
under section 401(a)(9)(C)(iii). Section 401(a)(9)(C)(iii) provides
that, if section 401(a)(9)(C)(i)(II) applies to an employee and the
employee retires in a calendar year after the calendar year in which
the employee attains age 70\1/2\, then the employee's accrued benefit
must be actuarially increased to take into account the period after age
70\1/2\ during which the employee was not receiving any benefits under
the plan. Section 401(a)(9)(C)(ii)(I) provides that section
401(a)(9)(C)(i)(II) (providing a required beginning date based on the
calendar year in which the employee retires) does not apply to an
employee who is a 5-percent owner (as defined in section 416) for the
plan year ending in the calendar year in which the employee attains age
72.
The proposed regulations reflect that the required actuarial
increase under section 401(a)(9)(C)(iii) does not apply to a 5-percent
owner. This is because the actuarial increase is limited to employees
to whom section 401(a)(9)(C)(i)(II) applies (and section
401(a)(9)(C)(ii)(I) provides that section 401(a)(9)(C)(i)(II) generally
does not apply in the case of an employee who is a 5-percent owner).
Thus, the required actuarial increase applies to an employee other than
a 5-percent owner who retires in a calendar year after the calendar
year in which the employee attains age 70\1/2\.
These proposed regulations, like the existing regulations, reflect
the exception from the requirements of section 401(a)(9)(C)(iii)
provided under section 401(a)(9)(C)(iv) for governmental plans and
church plans. Section 401(a)(9)(C)(iv) specifies that for purposes of
section 401(a)(9), a church plan is a plan maintained by a church for
church employees, and a church is any church within the meaning of
section 3121(w)(3)(A) or any qualified church-controlled organization
within the meaning of section 3121(w)(3)(B). These proposed regulations
clarify that the determination of whether an employee is a church
employee is made without regard to whether the employee would be
considered an employee of a church under section 414(e)(3)(B).
Therefore, a plan for the employees of a tax-exempt organization that
is not a church or a qualified church-controlled organization must
provide an actuarial increase for an employee who retires in a calendar
year after the calendar year
[[Page 10516]]
in which the employee reaches age 70\1/2\.
b. Interaction of Benefit Restrictions Under Section 436(d) and Minimum
Distribution Requirements Under Section 401(a)(9)
Under section 436(d), a plan is required to provide certain
limitations on accelerated benefit distributions. Under section
436(d)(1), if the plan's annual funding target attainment percentage
(AFTAP) for a plan year is less than 60 percent, the plan must not make
any prohibited payment (that is, a payment in excess of the monthly
amount paid under a single life annuity or a payment for the purchase
of an irrevocable commitment from an insurer to pay benefits) after the
valuation date for the plan year. Under section 436(d)(2), if the plan
sponsor is in bankruptcy proceedings, the plan may not pay any
prohibited payment unless the plan's enrolled actuary certifies that
the AFTAP of the plan is at least 100 percent. Under section 436(d)(3),
if the plan's AFTAP for a plan year is at least 60 percent but is less
than 80 percent, the plan must not pay any prohibited payment to the
extent the payment exceeds the lesser of (1) 50 percent of the amount
otherwise payable under the plan, and (2) the present value of the
maximum Pension Benefit Guaranty Corporation guarantee with respect to
a participant.
If an employee dies before the required beginning date and
distributions are being made in accordance with section
401(a)(9)(B)(ii), then the entire interest of the employee generally
must be distributed within 5 years of the employee's death (the 5-year
rule). Because compliance with this requirement under section
401(a)(9)(B)(ii) may conflict with the requirements of section 436(d),
these proposed regulations provide an exception to the 5-year rule so
that a plan will not fail to comply with those requirements merely
because payments by the plan are restricted by section 436(d). Under
this provision, benefits that are required to be paid under the 5-year
rule may extend past the section 401(a)(9)(B)(ii) deadline for full
payment provided that the payments (1) start by the fifth year after
the employee's death, and (2) are paid in a form that is as accelerated
as permitted under section 436(d).
2. Rules Applicable to Annuity Contracts
a. Annuity Providers Must Be Licensed
Like the existing regulations, these proposed regulations provide
that, for either a defined benefit plan or a defined contribution plan,
the required minimum distribution rules may be satisfied through the
purchase, with the employee's entire interest in the plan, of an
annuity contract that provides periodic annuity payments for the
employee's life (or the joint lives of the employee and beneficiary) or
over a period certain. These proposed regulations add a rule that, for
this purpose, the annuity contract must be issued by an insurance
company licensed in the jurisdiction where the annuity is sold.
However, pursuant to Sec. 1.403(b)-6(e)(5), this rule does not apply
to an annuity paid under a retirement income account that is described
in section 403(b)(9).
b. Qualified Longevity Annuity Contracts
In 2014, the Treasury Department and the IRS amended the
regulations under section 401(a)(9) in order to facilitate the
purchase, under a defined contribution plan, of a deferred annuity that
commences annuity payments at an advanced age. See 79 FR 37633. Those
modifications apply to an annuity contract that satisfies certain
requirements, including a requirement that distributions commence not
later than age 85. Prior to annuitization, the value of this type of
contract, referred to as a Qualified Longevity Annuity Contract (QLAC),
is excluded from the account balance used to determine required minimum
distributions.
Section 1.401(a)(9)-6, A-17(a)(4), of the existing regulations
provides that a QLAC may not make available any commutation benefit,
cash surrender value, or other similar feature. These proposed
regulations would change this rule so that this prohibition applies
only after the required beginning date. This change is proposed so that
if a plan's investment options include a series of target date funds to
which the relief under Notice 2014-66, 2014-46 I.R.B. 820 applies,\7\
those target date funds would be permitted to include QLACs among their
assets.
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\7\ Notice 2014-66 provides relief under section 401(a)(4) to
enable plans to provide lifetime income by offering, as investment
options, a series of target date funds that include deferred
annuities among their assets, even if some of the target date funds
within the series are available only to older participants.
---------------------------------------------------------------------------
3. Other Rules
a. Increasing Payments
Like the existing regulations, these proposed regulations generally
provide that all payments under a defined benefit plan or annuity
contract must be nonincreasing, subject to a number of exceptions.
These proposed regulations retain the exceptions in the existing final
regulations and add to the list of circumstances under which annuity
payments under a defined benefit plan may increase. Under the proposed
regulations, annuity payments may increase as a result of the
resumption of benefits that were suspended pursuant to section
411(a)(3)(B) (for a retiree whose benefits were suspended on account of
employment after commencement of benefits and then resume after the
suspension of benefits ends). In addition, annuity payments may
increase as a result of the resumption of benefits that were suspended
pursuant to section 418E (for an insolvent plan) or section 432(e)(9)
(for a participant or beneficiary of a plan in critical and declining
status whose benefits have been suspended under section 432(e)(9), if
the suspension of benefits consists of a temporary reduction of
benefits or if suspended benefits resume because of a failure to meet
the conditions of section 432(e)(9)(C)).
The existing regulations provide a number of exceptions under which
payments from annuity contracts purchased from insurance companies may
increase, and certain of these exceptions apply only if the total
future expected payments under the contract exceed the total value
being annuitized. These proposed regulations make a minor modification
to the rules to clarify the calculation of the total future expected
payments and the total value being annuitized. Specifically, these
proposed regulations modify the determination of the total value being
annuitized by providing that the total value is calculated as of the
date on which the contract is annuitized. This modification (under
which this determination is made as of the date on which the contract
is annuitized, rather than the date on which payments on the annuitized
contract begin as specified in Sec. 1.401(a)(9)-6, A-14(e)(1)(i) of
the existing regulations), will have an effect only in situations in
which the contract is annuitized on a date earlier than the date on
which payments begin. In addition, these proposed regulations update
the examples illustrating these rules to reflect the mortality rates in
Sec. 1.401(a)(9)-9.
These proposed regulations also provide three additional exceptions
to the nonincreasing payments requirement for annuities issued by
insurance companies that apply without regard to a comparison of the
total future expected payments and the total value being annuitized.
Two of these exceptions have been added because
[[Page 10517]]
commentors have identified that certain policy features are popular
with policyholders and these features do not have a material impact on
the amount of expected payments. First, these proposed regulations
allow an annuity contract to provide a final payment upon the death of
the employee that does not exceed the excess of total value being
annuitized over the total of payments before the death of the employee.
Second, these proposed regulations allow an annuity contract to offer a
short-term acceleration of payments, under which up to one year of
annuity payments are paid in advance of when those payments were
scheduled to be made. In addition, to facilitate compliance, these
proposed regulations provide a third exception that allows an annuity
contract to provide an acceleration of payments that is required to
comply with section 401(a)(9)(H).
b. Payments to Children
These proposed regulations amend the existing rules governing when,
pursuant to section 401(a)(9)(F), payment of an employee's accrued
benefit to a child may be treated as if the payments were made to a
surviving spouse. These rules are the same as under the existing
regulations except, as discussed in Section I.D.1.a of this Explanation
of Provisions, these proposed regulations specify that an individual
reaches the age of majority for purposes of sections
401(a)(9)(E)(ii)(II) and (F) on that individual's 21st birthday.
Under these proposed regulations, a plan's terms that define the
age of majority that were adopted on or before February 24, 2022 and
met the requirements of Sec. 1.401(a)(9)-6, A-15 of the existing
regulations are not required to be amended to reflect this change, and
the plan may continue to use that plan definition of the age of
majority for purposes of section 401(a)(9)(F). Moreover, because a
governmental plan is subject only to a reasonable, good faith standard
in complying with the rules of section 401(a)(9), the plan terms of a
governmental plan may use a definition of the age of majority for
purposes of section 401(a)(9)(F) that meets the requirements of Sec.
1.401(a)(9)-6, A-15 of the existing regulations, even if the plan terms
that define age of majority are adopted after that date.
G. Section 1.401(a)(9)-7--Rollovers and Transfers
Proposed Sec. 1.401(a)(9)-7 retains the rollover and transfer
rules that are in the existing regulations.
H. Section 1.401(a)(9)-8--Special Rules
Proposed Sec. 1.401(a)(9)-8 provides special rules applicable to
satisfying the minimum distribution requirement. These include separate
account treatment for beneficiaries, the definition of spouse (updated
to include the post-Obergefell regulations under Sec. 301.7701-18),
application of the qualified domestic relations order (QDRO) rules, and
the applicability of elections under section 242(b)(2) of the Tax
Equity and Fiscal Responsibility Act of 1982, Public Law 97-248, 96
Stat. 324 (1982) (TEFRA).
The proposed regulation generally retains the separate account
rules applicable to beneficiaries after the death of the employee that
were adopted in the existing regulations, including the rule that
prohibits separate application of section 401(a)(9) to separate
interests in a trust. However, in light of the new applicable multi-
beneficiary trust rules provided in section 401(a)(9)(H)(iv), these
proposed regulations provide an exception to that prohibition that
would permit separate application of section 401(a)(9) to the separate
subtrusts of a type I applicable multi-beneficiary trust.
These proposed regulations also clarify the rules under which
section 401(a)(9) is applied separately with respect to the separate
interests of each of the employee's beneficiaries under a plan,
provided that the separate accounting requirements are satisfied. Those
separate accounting requirements include:
(1) Any post-death distribution with respect to a beneficiary's
interest must be allocated to the separate account of that beneficiary;
(2) All post-death investment gains and losses, contributions, and
forfeitures, for the period prior to the establishment of the separate
accounts must be allocated on a pro rata basis in a reasonable and
consistent manner among the separate accounts; and
(3) The investment return with respect to the investments held in
the separate accounts that were established for the separate interests
of the beneficiaries must be allocated to those separate accounts.
However, if the separate accounting requirements are not satisfied
until after the end of the calendar year following the calendar year of
the employee's death, then, for calendar years after the separate
accounting requirements are satisfied: (1) The required minimum
distribution is determined without regard to the separate accounts; (2)
the aggregate distribution is allocated among the beneficiaries based
on each beneficiary's share of the total remaining balance of the
employee's interest; and (3) the allocated share for each beneficiary
must be distributed to each respective beneficiary.
I. Section 1.401(a)(9)-9--Life Expectancy and Distribution Period
Tables
These proposed regulations include minor changes to existing
provisions of Sec. 1.401(a)(9)-9 to conform the terminology in that
section to the new terminology used in proposed Sec. 1.401(a)(9)-5.
For example, references to the ``applicable distribution period'' have
been changed to refer to the ``applicable denominator.''
II. Section 402(c) Regulations
These proposed regulations provide updates to existing rules of
Sec. 1.402(c)-2 that reflect statutory amendments made to section
402(c) since the regulations were issued in 1995. Those amendments are
described in the Background section of this Preamble under the heading
``Section 402(c)--Rollovers.''
A. Exclusion From Income of Amount Rolled Over
These proposed regulations provide that, if an employee receives an
eligible rollover distribution and rolls it over to any eligible
retirement plan within 60 days of the distribution (including any
amount withheld under section 3405(c)), then the distribution generally
is not includible in gross income. However, if any portion of the
eligible rollover distribution is rolled over to a Roth IRA and the
distribution is not from a designated Roth account, that portion is
includible in the taxpayer's gross income but generally is not subject
to the 10-percent additional tax under section 72(t).
B. Definition of Eligible Rollover Distribution and Eligible Retirement
Plan
These proposed regulations update the definition of eligible
rollover distribution to include the portion of the distribution that
constitutes the employee's investment in the contract and provide that,
pursuant to section 402(c)(4)(C), an eligible rollover distribution
does not include any distribution made on account of hardship. These
proposed regulations also provide that a rollover distribution may be a
60-day rollover, a direct rollover described in section 401(a)(31), or
the repayment of a distribution that is treated as a rollover pursuant
to another statutory provision (such as the repayment of a qualified
birth or
[[Page 10518]]
adoption distribution that is treated as a rollover pursuant to section
72(t)(2)(H)(v)(III)).
These proposed regulations also update the list of amounts of
distributions and deemed distributions that are not eligible rollover
distributions. Specifically, the proposed regulation adds that a deemed
distribution with respect to a collectible pursuant to section 408(m)
is not treated as an eligible rollover distribution.
These proposed regulations provide that, pursuant to section
402(c)(8)(B), an eligible retirement plan is: (1) An IRA; (2) a
qualified plan (including an employee's trust described in section
401(a) that is exempt from taxation under section 501(a), an annuity
plan under section 403(a) or an annuity contract under 403(b)); or (3)
an eligible deferred compensation plan under section 457(b) maintained
by an employer described in section 457(e)(1)(A) (such as a State or
local government). Pursuant to section 402(c)(10), an eligible deferred
compensation plan under section 457(b) is an eligible retirement plan
only if it separately accounts for amounts rolled into the plan.
Furthermore, an eligible rollover distribution from a designated Roth
account under section 402A may be rolled over only to another
designated Roth account or to a Roth IRA.
C. Special Rules Related to Eligible Rollover Distributions
1. Distributions That Include Basis
In accordance with section 402(c)(2), these proposed regulations
provide that if an eligible rollover distribution includes an amount
that is allocable to the employee's basis (that is, the employee's
investment in the contract), then additional rules will apply if it is
not rolled over to an IRA. Specifically, if the rollover is to a
qualified plan or annuity contract described in section 403(b), then
the rollover must be made through a direct trustee-to-trustee transfer.
In addition, the portion of a distribution that is allocable to an
employee's basis may not be rolled over to an eligible deferred
compensation plan described in section 457(b).
These proposed regulations also provide that if an eligible
rollover distribution includes an amount that is allocable to an
employee's basis, and only a portion of that distribution is rolled
over, then the portion that is rolled over is treated as first
consisting of the portion of the distribution that is not allocable to
the employee's basis.
2. Distributions That Include Property
These proposed regulations reflect the rules in section
402(c)(1)(C) and provide that, generally, if an eligible rollover
distribution is made in the form of property, then that property may be
rolled over. In accordance with section 402(c)(6)(A), if that property
is sold after being distributed, then the proceeds of the sale may be
rolled over (up to the fair market value of the property at the time of
the sale), but only if the distribution otherwise satisfies the
requirements to be an eligible rollover distribution. The Treasury
Department and the IRS request comments on whether there are additional
issues under section 402(c)(6) concerning the treatment of the proceeds
of the sale of the property (including in situations in which the
proceeds of the sale exceed the fair market value of the property at
the time of the distribution) that should be addressed in future
guidance.
3. Extensions of and Exceptions to the 60-Day Rollover Deadline
These proposed regulations provide for certain extensions of and
exceptions to the 60-day deadline by which an eligible rollover
distribution must be rolled over to an eligible retirement plan.
Specifically, the regulations adopt the requirements of section
402(c)(3)(B), which provides that the Commissioner may waive the 60-day
deadline if the failure to waive that requirement would be against
equity or good conscience, including casualty, disaster, or other
events beyond the reasonable control of the individual with respect to
that requirement. In addition, the proposed regulations provide that
the 60-day period does not include any period during which the amount
transferred to the employee is a frozen deposit described in section
402(c)(7)(B), and does not end earlier than 10 days after that amount
ceases to be a frozen deposit. The proposed regulations also clarify
that in the case of a repayment of a distribution treated as a rollover
(such as a qualified disaster distribution), the repayment timing
requirements in the statutory provision giving rise to that treatment
take precedence over the otherwise applicable 60-day period. Finally,
these proposed regulations also move the rules for the section
402(c)(3)(C) exception to the 60-day deadline for a rollover of a QPLO
amount from Sec. 1.402(c)-3 to Sec. 1.402(c)-2(g).
D. Distributions to Beneficiaries
1. General Rules
These proposed regulations provide that, generally, a distributee
other than the employee or the employee's surviving spouse is not
permitted to roll over a distribution from a qualified plan. Pursuant
to section 402(c)(9), these proposed regulations provide that a
surviving spouse may roll over an employee's interest in the plan to an
IRA or a qualified plan. In the case of a spousal rollover to a
qualified plan, the amount rolled over is treated as the spouse's own
interest in the receiving plan and not as the decedent's interest in
the distributing plan. Accordingly, with respect to the amount rolled
over to a qualified plan, section 401(a)(9) is satisfied under the
rules of section 401(a)(9)(A) (applicable to distributions to
employees) and not section 401(a)(9)(B) (applicable to distributions to
beneficiaries following the employee's death).
These proposed regulations provide that a designated beneficiary
who is not a spouse may elect, under section 402(c)(11), to have any
portion of a distribution that fits within the definition of an
eligible rollover distribution transferred via a direct trustee-to-
trustee transfer to an IRA established for the purpose of receiving
that distribution. If that transfer is made pursuant to section
402(c)(11), the distribution is treated as an eligible rollover
distribution; the IRA is treated as an inherited account or annuity (as
defined in section 408(d)(3)(C), so that distributions from the
inherited IRA are not eligible to be rolled over); and the IRA is
subject to section 401(a)(9)(B) (other than section 401(a)(9)(B)(iv)).
In determining whether a distribution to a beneficiary is an
eligible rollover distribution, the portion of the distribution that
constitutes a required minimum distribution under section 401(a)(9)
must be determined. The proposed regulations set forth rules for making
this determination that are similar to the rules adopted in Notice
2007-7, Q&A-17 and Q&A-19, but are expanded to apply to both spouse and
non-spouse beneficiaries.
These proposed regulations provide that, generally, if an employee
dies before the required beginning date, then the amount of a
distribution to a beneficiary that is treated as a required minimum
distribution under section 401(a)(9) (and thus is not an eligible
rollover distribution) is determined based on whether the 5-year rule,
10-year rule, or life expectancy rule (or, in the case of a defined
benefit plan, the annuity payment rule) applies. Regardless of which
rule applies, no portion of a distribution made in the year of the
employee's death is treated as a required minimum distribution under
section 401(a)(9).
[[Page 10519]]
If the 5-year rule applies, then no amount distributed before the
fifth calendar year after the calendar year of the employee's death is
treated as a required minimum distribution. In the fifth calendar year
after the calendar year of the employee's death, the entire amount
distributed in that year is treated as a required minimum distribution
(and thus is not an eligible rollover distribution). Similarly, if the
10-year rule applies, then, generally, no amount distributed before the
tenth calendar year after the calendar year of the employee's death is
treated as a required minimum distribution. In the tenth calendar year
after the calendar year of the employee's death, the entire amount
distributed in that year is treated as a required minimum distribution
(and thus is not an eligible rollover distribution).
If the employee dies on or after the required beginning date or if
the life expectancy rule applies (or, in the case of a defined benefit
plan, the annuity payment rule applies), then, in the first
distribution calendar year for the beneficiary and for each subsequent
year, the amount treated as a required minimum distribution (and thus
is not an eligible rollover distribution) is determined in accordance
with the rules described in Sections I.F and I.G of this Explanation of
Provisions. In this situation, if the employee dies before receiving
the distribution, the amount that would have otherwise been a required
minimum distribution for the employee in the calendar year of the
employee's death is treated as a required minimum distribution with
respect to any distribution to a beneficiary of the employee. A similar
rule applies if the employee's beneficiary dies before receiving the
distribution for the calendar year of the beneficiary's death, so that
the amount that would have otherwise been a required minimum
distribution for the employee's beneficiary in the calendar year of
that beneficiary's death is treated as a required minimum distribution
with respect to any distribution to a beneficiary of the employee's
beneficiary.
These proposed regulations provide an exception for a beneficiary
to whom the 5-year rule or 10-year rule applies if that beneficiary
makes the election described in Section IV of this Explanation of
Provisions to have the life expectancy rule (or annuity payment rule)
apply to amounts in the IRA that receives the distribution (rather than
the 5-year rule or 10-year rule that applied under the distributing
plan). This exception ensures that if a beneficiary makes that
election, then the portion of a distribution from the plan that is a
required minimum distribution is determined in a consistent manner with
respect to all amounts to which the life expectancy rule or annuity
payment rule apply.
2. Special Rule for Certain Distributions to Surviving Spouses
These proposed regulations also provide for a special rule that
limits the ability of a surviving spouse to use the 5-year rule or the
10-year rule to defer distributions beyond the otherwise required
beginning date and then, after that date, commence annual
distributions. This rule, which applies in limited circumstances, is
used to determine, with respect to a distribution to the employee's
surviving spouse to whom the 5-year rule or 10-year rule applies, the
portion of that distribution that is treated as a required minimum
distribution under section 401(a)(9) (and thus is not an eligible
rollover distribution). This special rule, which treats a portion of a
distribution made before the last year of the 5-year or 10-year period
(whichever applies to the spouse) as a required minimum distribution,
applies if: (1) The distribution is made in or after the calendar year
the surviving spouse attains age 72; and (2) the surviving spouse rolls
over some or all of the distribution to an eligible retirement plan
under which the surviving spouse is not treated as the beneficiary of
the employee. For example, this special rule applies when an employee
dies at age 67, the spouse (who is age 68) elects the 10-year rule, the
spouse takes a distribution in the 6th calendar year following the
employee's death (the calendar year in which the spouse is age 74 and
the employee would have been age 73) and the surviving spouse is
rolling over a part of that distribution to the spouse's own IRA (but
the rule would not apply if the distribution occurred in the calendar
year that the surviving spouse attained age 71 or an earlier year).
Under this special rule, the portion of the distribution that is
treated as a required minimum distribution is the cumulative total,
over a span of years, of the hypothetical required minimum distribution
for each year had the life expectancy rule applied (or, in the case of
a defined benefit plan, had the annuity payment rule applied), reduced
by any amounts actually distributed to the surviving spouse during that
span of years. The span of years begins with the first applicable year
(defined as the later of the calendar year in which the surviving
spouse reaches age 72 and the calendar year in which the employee would
have reached age 72) and ends in the year of distribution.
In calculating the hypothetical required minimum distributions from
a defined contribution plan for a calendar year under this special
rule, the proposed regulations provide that an adjusted account balance
is used. The adjusted account balance for a calendar year is determined
by reducing the account balance that normally would be used to
determine the required minimum distribution for that year by the excess
(if any) of: (1) The sum of the hypothetical required minimum
distributions beginning with the first applicable year and ending with
the calendar year preceding the calendar year of the determination,
over (2) the distributions actually made to the surviving spouse during
those calendar years.
III. Section 403(b) Regulations
A. Section 1.403(b)-6(e)--Minimum Required Distributions for Eligible
Plans
These proposed regulations amend Sec. 1.403(b)-6(e) to conform
that paragraph (which sets forth the required minimum distribution
rules for a section 403(b) contract) to the changes made to section
401(a)(9) under the SECURE Act. For example, pursuant to the change in
the required beginning date under section 114 of the SECURE Act, these
proposed regulations change the reference to age 70\1/2\ in the current
regulations to the required beginning date as determined under Sec.
1.401(a)(9)-2(b).
These proposed regulations also amend Sec. 1.403(b)-6(e) to
provide that the exception from the applicability of section
401(a)(9)(H) for qualified annuities provided in section 401(b)(4) of
the SECURE Act applies in the case of a section 403(b)(9) retirement
income account even if a commercial annuity (as defined in section
3405(e)(6) of the Code) is not used, provided that all of the other
requirements for the qualified annuity exception are satisfied.
B. Request for Comments Regarding Required Minimum Distributions From
Section 403(B) Plans
Under Sec. 1.403(b)-6(e), the required minimum distribution rules
applicable to IRAs apply to section 403(b) contracts, and, in general,
the required minimum distribution rules for section 403(b) plans are
applied in accordance with Sec. 1.408-8. Thus, for example, under
Sec. 1.403(b)-6(e)(7), a required minimum distribution owed with
respect to one section 403(b) contract of an individual is permitted to
be distributed from another section 403(b)
[[Page 10520]]
contract of the same individual. Although IRA trustees are required, on
Form 5498, IRA Contribution Information, to report to the IRS and
provide to IRA owners certain information regarding required minimum
distributions (such as whether a required minimum distribution is due
for a year and the account balance on which the required minimum
distribution will be based), Notice 2002-27, 2002-18 I.R.B. 814,
provides that no reporting is required with respect to required minimum
distributions from section 403(b) contracts. Accordingly, a section
403(b) plan is neither required to automatically make a required
minimum distribution for a participant nor required to inform the IRS
or the participant that a required minimum distribution is due or the
account balance on which the distribution is based.
The required minimum distribution rules applicable to section
403(b) contracts were developed before 2007 when the section 403(b)
regulations were issued and made section 403(b) plans more like
employer-sponsored qualified plans rather than IRAs, including
requiring employers to adopt a written plan document that describes
employer responsibilities under the plan. The existing regulations also
provide that section 403(b) plans determine the required beginning date
in accordance with the rules applicable to qualified plans rather than
the rules applicable to IRAs, and that the qualified plan rules related
to the purchase of a QLAC apply to section 403(b) plans rather than the
corresponding IRA rules. These proposed regulations further treat a
section 403(b) plan like a qualified plan in that the distributions or
deemed distributions not taken into account in determining the required
minimum distribution for a calendar year are the distributions or
deemed distributions described in the qualified plan rules rather than
the IRA rules.
The Treasury Department and the IRS are considering additional
changes to the required minimum distribution rules for section 403(b)
plans so that they more closely follow the required minimum
distribution rules for qualified plans. For example, under this
approach, each section 403(b) plan (like each qualified plan) would be
required to make required minimum distributions calculated with respect
to that plan (rather than rely on the employee to request distributions
from another plan in an amount that satisfies the requirement). These
changes would treat similar employer-sponsored plans consistently and
may facilitate compliance with the required minimum distribution rules.
The Treasury Department and the IRS request comments on these
possible changes to the required minimum distribution rules for section
403(b) plans, including: (1) Any administrative concerns; (2) any
differences between the structure or administration of section 403(b)
plans and of qualified plans that should be taken into account in
applying the required minimum distribution rules for qualified plans to
section 403(b) plans; and (3) any transition rules that would ease the
implementation of these possible changes.
IV. Section 1.408-8--Distribution Requirements for IRAs
These proposed regulations amend Sec. 1.408-8 (which sets forth
the required minimum distribution rules for IRAs) to implement the
changes made to section 401(a)(9) under the SECURE Act. For example,
pursuant to the change in the required beginning date under section 114
of the SECURE Act, these proposed regulations change the references to
age 70\1/2\ in the current regulations to the required beginning date
as determined under Sec. 1.401(a)(9)-2(b)(3). This change reflects
that the IRA owner's required beginning date is April 1 of the calendar
year after the calendar year in which the individual attains age 72 (or
70\1/2\ in the case of an IRA owner born before July 1, 1949). These
proposed regulations also provide that the owner of a Roth IRA is not
required to begin distributions during the owner's lifetime (consistent
with existing Sec. 1.408A-6, Q&A-14 and 15).
These proposed regulations incorporate the rules in Notice 2007-7,
Q&A-17 and 19 (relating to the carryover of the method of determining
required minimum distributions from a distributing plan to a receiving
IRA when a beneficiary is making a transfer described in section
402(c)(11)). In addition, these proposed regulations extend those rules
to provide comparable treatment to a surviving spouse in light of the
extension of the 5-year period to a 10-year period pursuant to section
401(a)(9)(H). Specifically, these proposed regulations provide that, if
an employee dies before the employee's required beginning date after
designating the employee's spouse as a beneficiary, and the surviving
spouse rolls over a distribution from the qualified plan to an IRA in
the name of the decedent, then any distribution method that was elected
under the qualified plan also will apply to the IRA that receives the
rollover. The same rule applies in the case of an IRA owner who dies
before the required beginning date (so that, if the surviving spouse
rolls over a distribution to an IRA in the name of the decedent, then
the distribution method that was elected under the distributing IRA
will also apply to the IRA that receives the rollover).
These proposed regulations also provide an exception to the rules
in the preceding paragraph providing for comparable treatment between
surviving spouse beneficiaries and other designated beneficiaries.
Under this exception, a surviving spouse, to whom the 5-year rule or
10-year rule applies and who rolls over a distribution from a plan (or
an IRA) to an IRA in the decedent's name, may elect to have
distributions from the IRA that receives the rollover be subject to the
life expectancy rule (rather than the 5-year rule or 10-year rule). The
deadline for making this election is the deadline that would have
applied for an election between the 5-year rule (or 10-year rule) and
the life expectancy rule (or annuity payment rule) had the distributing
plan provided for an election between those rules by the beneficiary.
As described in Section II.D. of this Explanation of Provisions, if
this election is made, then the portion of a distribution that is
treated as the required minimum distribution also will be calculated
using the life expectancy rule (or annuity payment rule).
The proposed rules described in the preceding two paragraphs also
are proposed to apply to a non-spouse beneficiary who is making a
transfer described in section 402(c)(11) (incorporating the rules of
Notice 2007-7, Q&A-17 and 19). Thus, for example, if an eligible
designated beneficiary elects the 10-year rule and, in the seventh
calendar year after the calendar year of the employee's death, that
beneficiary elects for a distribution to be made in the form of a
direct transfer of the employee's interest under the plan to an IRA in
the name of the decedent, then the amount transferred nevertheless must
be distributed by the end of the tenth calendar year following the
calendar year of the employee's death. However, if the distribution is
made by the end of the calendar year following the year the employee
dies, then the beneficiary would be permitted to make an election to
have the life expectancy rule apply under the IRA.
These new rules relating to the distribution method of the
receiving IRA do not apply to a surviving spouse when that spouse is
rolling over a distribution to the spouse's own account in a qualified
plan or to the spouse's own IRA (because distributions would then
[[Page 10521]]
be made in accordance with section 401(a)(9)(A) instead of section
401(a)(9)(B)). In that case, these proposed regulations provide that
the amount of the distribution treated as a required minimum
distribution, and thus not eligible to be rolled over, is determined in
accordance with Sec. 1.402(c)-2(j) (including the new rule under which
in certain circumstances a spouse who elects the 10-year rule is
required to treat a portion of any distribution as a required minimum
distribution under the life expectancy rule).
To coordinate with these rules, the proposed regulations provide a
deadline for the election under which a surviving spouse may elect to
treat a decedent's IRA as the spouse's own. Specifically, a surviving
spouse must make that election by the later of (1) the end of the
calendar year in which the surviving spouse reaches age 72, and (2) the
end of the calendar year following the calendar year of the IRA owner's
death. This new deadline should not disrupt the normal application of
the election, because the primary purpose for not making an immediate
election is for a surviving spouse who has not yet reached age 59\1/2\
to take advantage of the section 72(t)(2)(A)(ii) exception to the 10%
additional income tax on early withdrawals made by a beneficiary. If
the surviving spouse were to miss the deadline provided for in these
proposed regulations, that surviving spouse still would be permitted to
roll over distributions to the spouse's own IRA but would be subject to
the special rule on the catch-up of hypothetical required minimum
distributions described in Section II.D of this Explanation of
Provisions.
These proposed regulations also provide that any beneficiary
(including a non-individual beneficiary) may aggregate IRAs that are
inherited from the same decedent when determining the amount that is a
required minimum distribution. Thus, for example, if a trust is the
beneficiary of two IRAs that are inherited from the same decedent, the
trustee may aggregate those IRAs when determining the amount that is a
required minimum distribution and take that aggregate amount from
either one of the IRAs.
V. Section 1.457-6(d)--Minimum Required Distributions for Eligible
Plans
These proposed regulations delete a sentence in Sec. 1.457-6(d)
that describes section 401(a)(9), because the sentence refers to age
70\1/2\, and is no longer accurate following the amendment to the
definition of required beginning date under section 114 of the SECURE
Act.
VI. Section 54.4974-1--Excise Tax on Accumulations in Qualified
Retirement Plans
These proposed regulations provide amendments to Sec. 54.4974-2
(which is renumbered as Sec. 54.4974-1) to conform the rules to the
changes made to section 401(a)(9) under the SECURE Act. For example,
the rules for determining the required minimum distribution when the 5-
year rule applies are expanded to include rules for determining the
required minimum distribution when the 10-year rule applies.
These proposed regulations also provide two situations in which an
automatic waiver of the excise tax applies, one of which is based on
the automatic waiver in the existing regulation. The first situation in
which the automatic waiver applies is when: (1) The employee (or in the
case of an IRA, the IRA owner) died before the required beginning date;
(2) the payee is an eligible designated beneficiary who did not make an
affirmative election to use the life expectancy rule but otherwise is
subject to the life expectancy rule pursuant to a plan provision or the
regulatory default provision that applies in the absence of a plan
provision; (3) the payee did not satisfy the required minimum
distribution requirements; and (4) the payee elects for the employee's
or IRA owner's entire interest to be distributed under the 10-year
rule. In that case, once the payee elects the 10-year rule, the payee's
required minimum distribution in the tenth calendar year following the
calendar year of the employee's or IRA owner's death is the entire
account balance.
The second situation in which an automatic waiver applies is in the
case of an individual who had a minimum distribution requirement in a
calendar year and died in that calendar year before satisfying that
minimum distribution requirement. In this situation, the individual's
beneficiary must satisfy the minimum distribution requirement by the
end of that calendar year. However, if that beneficiary fails to
satisfy the minimum distribution requirement in that calendar year,
then the excise tax for the failure to take the distribution is
automatically waived provided that the beneficiary satisfies that
requirement no later than that beneficiary's tax filing deadline
(including extensions thereof).
Applicability Dates
Amended Sec. Sec. 1.401(a)(9)-1 through 1.401(a)(9)-9, 1.403(b)-
6(e), and 1.408-8 are proposed to apply for purposes of determining
required minimum distributions for calendar years beginning on or after
January 1, 2022. Amended Sec. 1.402(c)-2 is proposed to apply for
distributions on or after January 1, 2022. Amended Sec. 54.4974-1 is
proposed to apply for taxable years beginning on or after January 1,
2022. For the 2021 distribution calendar year, taxpayers must apply the
existing regulations, but taking into account a reasonable, good faith
interpretation of the amendments made by sections 114 and 401 of the
SECURE Act. Compliance with these proposed regulations will satisfy
that requirement.
Special Analyses
These regulations are not subject to review under section 6(b) of
Executive Order 12866 pursuant to the Memorandum of Agreement (April
11, 2018) between the Treasury Department and the Office of Management
and Budget regarding review of tax regulations.
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that the regulations will not have a significant
economic impact on a substantial number of small entities. These
proposed regulations do not impose new compliance burdens and are not
expected to result in economically meaningful changes in behavior
relative to the existing regulations. The election described in Sec.
1.401(a)(9)-3(b)(4)(iii) and (c)(5)(iii) is expected to be an unusual
occurrence for small entities because few individuals with benefits in
retirement plans maintained by small entities are likely to make these
elections. In the case of Sec. 1.401(a)(9)-4(e)(7), when determining
whether a designated beneficiary is disabled or chronically ill, the
reporting burden is primarily on the designated beneficiary rather than
the plan sponsor. In the case of Sec. 1.401(a)(9)-4(h), when
determining required minimum distributions in cases in which a plan
participant wishes to designate a trust as beneficiary of the
participant's benefit, the reporting burden is primarily on the plan
participant, or the trustee of the trust named as beneficiary, to
supply information rather than on the entity maintaining the retirement
plan. In addition, the number of participants per plan to whom the
burden applies is likely to be small. In Sec. 1.403(b)-3(e)(6)(ii),
the recordkeeping burden with respect to section 403(b) contracts under
which the pre-1987 account balance must be maintained only applies to
issuers and custodians of those contracts, which generally are not
[[Page 10522]]
small entities. Therefore, a regulatory flexibility analysis under the
Regulatory Flexibility Act is not required. Treasury and IRS invite
comments on the impact of these regulations on small entities. Pursuant
to section 7805(f) of the Code, these proposed regulations will be
submitted to the Chief Counsel for Advocacy of the Small Business
Administration for comment on their impact on small business.
Paperwork Reduction Act
The collection of information related to these proposed regulations
under sections 401(a)(9) and 403(b) has been reviewed in accordance
with the Paperwork Reduction Act (44 U.S.C. 3507) and approved by the
Office of Management and Budget under control number 1545-0047.
Comments concerning the collection of information and the accuracy
of estimated average annual burden and suggestions for reducing this
burden should be sent to the Office of Management and Budget, Attn:
Desk Officer for the Department of the Treasury, Office of Information
and Regulatory Affairs, Washington, DC 20503, with copies to the
Internal Revenue Service, IRS Reports Clearance Officer,
SE:W:CAR:MP:T:T:SP, Washington, DC 20224. Comments on the burden
associated with this collection of information must be received by
April 25, 2022.
Comments
Before the proposed amendments are adopted as final regulations,
consideration will be given to any comments that are submitted timely
to the IRS as prescribed in this preamble under the ADDRESSES section.
The Treasury Department and the IRS request comments on all aspects of
the proposed regulations. Any electronic comments submitted, and to the
extent practicable any paper comments submitted, will be made available
at <a href="http://www.regulations.gov">www.regulations.gov</a> or upon request
Statement of Availability of IRS Documents
IRS Revenue Procedures, Revenue Rulings notices, and other guidance
cited in this document are published in the Internal Revenue Bulletin
(or Cumulative Bulletin) and are available from the Superintendent of
Documents, U.S. Government Publishing Office, Washington, DC 20402, or
by visiting the IRS website at <a href="http://www.irs.gov">http://www.irs.gov</a>.
Drafting Information
The principal authors of these proposed regulations are Brandon M.
Ford and Laura B. Warshawsky, of the Office of the Associate Chief
Counsel (Employee Benefits, Exempt Organizations, and Employment
Taxes). However, other personnel from the Treasury Department and the
IRS participated in the development of the proposed regulations.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 54
Excise taxes, Pensions, Reporting and recordkeeping requirements.
Proposed Amendments to the Regulations
Accordingly, 26 CFR parts 1 and 54 are proposed to be amended as
follows:
PART 1--INCOME TAX
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805, unless otherwise noted.
0
Par. 2. Revise sections 1.401(a)(9)-0 through 1.401(a)(9)-8 to read as
follows:
Sec. 1.401(a)(9)-0 Required minimum distributions; table of contents.
This table of contents lists the regulations relating to required
minimum distributions under section 401(a)(9) of the Internal Revenue
Code as follows:
Sec. 1.401(a)(9)-1 Minimum distribution requirement in general.
(a) Plans subject to minimum distribution requirement.
(1) In general.
(2) Participant in multiple plans.
(3) Governmental plans.
(b) Statutory effective date.
(1) In general.
(2) Applicability date for section 401(a)(9)(H).
(3) Examples.
(c) Required and optional plan provisions.
(1) Required provisions.
(2) Optional provisions.
(d) Regulatory effective date.
Sec. 1.401(a)(9)-2 Distributions commencing during an employee's
lifetime.
(a) Distributions commencing during an employee's lifetime.
(1) In general.
(2) Amount required to be distributed for a calendar year.
(3) Distributions commencing before required beginning date.
(4) Distributions after death.
(b) Determination of required beginning date.
(1) General rule.
(2) Employees born before July 1, 1949.
(3) Required beginning date for 5-percent owner.
(4) Uniform required beginning date.
Sec. 1.401(a)(9)-3 Death before required beginning date.
(a) In general.
(b) Distribution requirements in the case of a defined benefit
plan.
(1) In general.
(2) 5-year rule.
(3) Annuity payments.
(4) Determination of which rule applies.
(c) Distributions in the case of a defined contribution plan.
(1) In general.
(2) 5-year rule.
(3) 10-year rule.
(4) Life expectancy payments.
(5) Determination of which rule applies.
(d) Permitted delay for surviving spouse beneficiaries.
(e) Distributions that commence after surviving spouse's death.
(1) In general.
(2) Remarriage of surviving spouse.
(3) When distributions are treated as having begun to surviving
spouse.
Sec. 1.401(a)(9)-4 Determination of the designated beneficiary.
(a) Beneficiary designated under the plan.
(1) In general.
(2) Entitlement to employee's interest in the plan.
(3) Specificity of beneficiary designation.
(4) Affirmative and default elections of designated beneficiary.
(b) Designated beneficiary must be an individual.
(c) Rules for determining beneficiaries.
(1) Time period for determining the beneficiary.
(2) Circumstances under which a beneficiary is disregarded as a
beneficiary of the employee.
(3) Examples.
(d) Application of beneficiary designation rules to surviving
spouse.
(e) Eligible designated beneficiaries.
(1) In general.
(2) Multiple designated beneficiaries.
(3) Determination of age of majority.
(4) Disabled individual.
(5) Chronically ill individual.
(6) Individual not more than 10 years younger than the employee.
(7) Documentation requirements for disabled or chronically ill
individuals.
(8) Applicability of definition of eligible designated
beneficiary to beneficiary of surviving spouse.
(9) Examples.
(f) Special rules for trusts.
(1) Look-through of trust to determine designated beneficiaries.
(2) Trust requirements.
(3) Trust beneficiaries treated as beneficiaries of the
employee.
(4) Multiple trust arrangements.
(5) Identifiability of trust beneficiaries.
(6) Examples.
(g) Applicable multi-beneficiary trusts.
(1) General definition of an applicable multi-beneficiary trust.
(2) Type I applicable multi-beneficiary trust.
(3) Type II applicable multi-beneficiary trust.
[[Page 10523]]
(h) Documentation requirements for trusts.
(1) General rule.
(2) Required minimum distributions while employee is still
alive.
(3) Required minimum distributions after death.
(4) Relief for discrepancy between trust instrument and employee
certifications or earlier trust instruments.
Sec. 1.401(a)(9)-5 Required minimum distributions from defined
contribution plans.
(a) General rules.
(1) In general.
(2) Distribution calendar year.
(3) Time for distributions.
(4) Minimum distribution incidental benefit requirement.
(5) Annuity contracts.
(6) Impact of additional distributions in prior years.
(b) Determination of account balance.
(1) General rule.
(2) Adjustment for subsequent allocations.
(3) Adjustment for subsequent distributions.
(4) Exclusion for QLAC contract.
(5) Treatment of rollovers.
(c) Determination of applicable denominator during employee's
lifetime.
(1) General rule.
(2) Spouse is sole beneficiary.
(d) Applicable denominator after employee's death.
(1) Death on or after the employee's required beginning date.
(2) Death before an employee's required beginning date.
(3) Remaining life expectancy.
(e) Distribution of employee's entire interest required.
(1) In general.
(2) 10-year limit for designated beneficiary who is not an
eligible designated beneficiary.
(3) 10-year limit following death of eligible designated
beneficiary.
(4) 10-year limit after minor child of the employee reaches age
of majority.
(5) Life expectancy limit for older eligible designated
beneficiaries.
(f) Rules for multiple designated beneficiaries.
(1) Determination of applicable denominator.
(2) Determination of when entire interest is required to be
distributed.
(g) Treatment of nonvested amounts.
(h) Distributions taken into account.
Sec. 1.401(a)(9)-6 Required minimum distributions for defined
benefit plans and annuity contracts.
(a) Defined benefit plans.
(1) In general.
(2) Definition of life annuity.
(3) Annuity commencement.
(4) Single-sum distributions.
(5) Death benefits.
(6) Separate treatment of separate identifiable components.
(7) Additional guidance.
(b) Application of incidental benefit requirement.
(1) Life annuity for employee.
(2) Joint and survivor annuity.
(3) Period certain and annuity features.
(4) Deemed satisfaction of incidental benefit rule.
(c) Period certain annuity.
(1) Distributions commencing during the employee's life.
(2) Distributions commencing after the employee's death.
(d) Use of annuity contract.
(e) Treatment of additional accruals.
(1) General rule.
(2) Administrative delay.
(f) Treatment of nonvested benefits.
(g) Requirement for actuarial increase.
(1) General rule.
(2) Nonapplication to 5-percent owners.
(3) Nonapplication to governmental and church plans.
(h) Amount of actuarial increase.
(1) In general.
(2) Actuarial equivalence basis.
(3) Coordination with section 411 actuarial increase.
(i) [Reserved].
(j) Distributions restricted pursuant to section 436.
(1) General rule.
(2) Payments restricted under section 436(d)(3).
(3) Payments restricted under section 436(d)(1) or (2).
(k) Treatment of early commencement.
(1) General rule.
(2) Joint and survivor annuity, nonspouse beneficiary.
(3) Limitation on period certain.
(l) Early commencement for surviving spouse.
(m) Determination of entire interest under annuity contract.
(1) General rule.
(2) Entire interest.
(3) Exclusions.
(4) Examples.
(n) Change in annuity payment period.
(1) In general.
(2) Reannuitization.
(3) Conditions.
(4) Examples.
(o) Increase in annuity payments.
(1) General rules.
(2) Eligible cost of living index.
(3) Additional permitted increases for certain annuity contracts
purchased from insurance companies.
(4) Additional permitted increases for all annuity contracts
purchased from insurance companies.
(5) Additional permitted increases for annuity payments from a
qualified trust.
(6) Definitions.
(7) Examples.
(p) Payments to children.
(1) In general.
(2) Age of majority.
(q) Qualifying longevity annuity contract.
(1) Definition of qualifying longevity annuity contract.
(2) Limitations on premiums.
(3) Payments after death of the employee.
(4) Rules of application.
Sec. 1.401(a)(9)-7 Rollovers and transfers.
(a) Treatment of rollover from distributing plan.
(b) Treatment of rollover by receiving plan.
(c) Treatment of transfer under transferor plan.
(1) Generally not treated as distribution.
(2) Account balance decreased after transfer.
(d) Treatment of transfer under transferee plan.
(e) Treatment of spinoff or merger.
Sec. 1.401(a)(9)-8 Special rules.
(a) Use of separate accounts
(1) Separate application of section 401(a)(9) for beneficiaries.
(2) Separate accounting requirements.
(b) Application of consent requirements.
(c) Definition of spouse.
(d) Treatment of QDROs.
(1) Continued treatment of spouse.
(2) Separate accounts.
(3) Other situations.
(e) Application of section 401(a)(9) pending determination of
whether a domestic relations order is a QDRO is being made.
(f) Application of section 401(a)(9) when insurer is in state
delinquency proceedings.
(g) In-service distributions required to satisfy section
401(a)(9).
(h) TEFRA section 242(b) elections.
(1) In general.
(2) Application of section 242(b) election after transfer.
(3) Application of section 242(b) election after rollover.
(4) Revocation of section 242(b) election.
Sec. 1.401(a)(9)-9 Life expectancy and distribution period tables.
(a) In general.
(b) Single Life Table.
(c) Uniform Life Table.
(d) Joint and Last Survivor Table.
(e) Mortality rates.
(f) Applicability dates.
(1) In general.
(2) Application to life expectancies that may not be
recalculated.
Sec. 1.401(a)(9)-1 Minimum distribution requirement in general.
(a) Plans subject to minimum distribution requirement--(1) In
general. Under section 401(a)(9), all stock bonus, pension, and profit-
sharing plans qualified under section 401(a) and annuity contracts
described in section 403(a) are subject to required minimum
distribution rules. See this section and Sec. Sec. 1.401(a)(9)-2
through 1.401(a)(9)-9 for the distribution rules applicable to these
plans. Under section 403(b)(10), annuity contracts and custodial
accounts described in section 403(b) are subject to required minimum
distribution rules. See Sec. 1.403(b)-6(e) for the distribution rules
applicable to these annuity contracts and custodial accounts. Under
section 408(a)(6) and 408(b)(3), individual retirement accounts and
individual retirements annuities (collectively, IRAs) are subject to
required minimum distribution rules. See Sec. 1.408-8 for the minimum
distribution rules applicable to IRAs and Sec. 1.408A-6 for the
minimum distribution rules applicable to Roth IRAs under section 408A.
Under section
[[Page 10524]]
457(d)(2), eligible deferred compensation plans described in section
457(b) for employees of tax-exempt organizations or employees of State
and local governments are subject to required minimum distribution
rules. See Sec. 1.457-6(d) for the minimum distribution rules
applicable to those eligible deferred compensation plans.
(2) Participant in multiple plans. If an employee is a participant
in more than one plan, the plans in which the employee participates are
not permitted to be aggregated for purposes of testing whether the
distribution requirements of section 401(a)(9) are met. Thus, the
distribution of the benefit of the employee under each plan must
separately meet the requirements of section 401(a)(9). For this
purpose, a plan described in section 414(k) is treated as two separate
plans, a defined contribution plan to the extent benefits are based on
an individual account and a defined benefit plan with respect to the
remaining benefits.
(3) Governmental plans. A governmental plan (within the meaning of
section 414(d)), or an eligible governmental plan described in Sec.
1.457-2(f), is treated as having complied with section 401(a)(9) if the
plan complies with a reasonable, good faith interpretation of section
401(a)(9). Thus, the terms of a governmental plan that reflect a
reasonable, good faith interpretation of section 401(a)(9) do not have
to provide that distributions will be made in accordance with this
section and Sec. Sec. 1.401(a)(9)-2 through 1.401(a)(9)-9. Similarly,
a governmental plan may apply the rules of section 401(a)(9)(F) using
the rules of 26 CFR 1.401(a)(9)-6, Q&A-15 (revised as of April 1,
2021).
(b) Statutory effective date--(1) In general. The distribution
rules of section 401(a)(9) generally apply to all account balances and
benefits in existence on or after January 1, 1985.
(2) Applicability date for section 401(a)(9)(H)--(i) General
effective date. Except as provided in this paragraph (b), section
401(a)(9)(H) applies with respect to employees who die on or after
January 1, 2020. However, in the case of a governmental plan (as
defined in section 414(d)), section 401(a)(9)(H) applies with respect
to employees who die on or after January 1, 2022.
(ii) Delayed applicability date for collectively bargained plans--
(A) General rule. 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 December 20, 2019 (the date
of enactment of the Further Consolidated Appropriations Act, Pub. L.
116-94, 133 Stat. 2534 (2019)), section 401(a)(9)(H) generally applies
with respect to employees who die on or after January 1, 2022.
(B) Earlier application if agreements terminate. Notwithstanding
paragraph (b)(2)(ii)(A) of this section, section 401(a)(9)(H) applies
to a plan maintained pursuant to one or more collective bargaining
agreements with respect to employees who die in 2020 or 2021 if--
(1) The year in which the employee dies begins after the date on
which the last of the collective bargaining agreements described in
paragraph (b)(2)(ii)(A) of this section terminates (determined without
regard to any extension thereof to which the parties agreed on or after
December 20, 2019), and
(2) Section 401(a)(9)(H) would apply with respect to the employee
under the rules of paragraph (b)(2)(i) of this section.
(C) Rules of application. For purposes of this paragraph
(b)(2)(ii)--
(1) A plan is treated as maintained pursuant to one or more
collective bargaining agreements only if the plan constitutes a
collectively bargained plan under the rules of Sec. 1.436-
1(a)(5)(ii)(B), and
(2) Any plan amendment made pursuant to a collective bargaining
agreement that amends the plan solely to conform to the requirements of
section 401(a)(9)(H) is not treated as a termination of the collective
bargaining agreement.
(iii) Applicability upon death of designated beneficiary--(A) In
general. Except as otherwise provided in this paragraph (b)(2)(iii), if
an employee who died before the effective date described in paragraph
(b)(2)(i) or (ii) of this section (whichever applies to the plan) has
only one designated beneficiary and that beneficiary dies on or after
that effective date, then, upon the death of the designated
beneficiary, section 401(a)(9)(H) applies with respect to any
beneficiary of the employee's designated beneficiary. Section 401(b)(5)
of Division O of the Further Consolidated Appropriations Act (known as
the SECURE Act), provides that, if an employee dies before the
effective date, then a designated beneficiary of an employee is treated
as an eligible designated beneficiary. Accordingly, once the rules of
section 401(a)(9)(H) apply with respect to the employee's designated
beneficiary, the rules of section 401(a)(9)(H)(iii) (requiring full
distribution of the employee's interest within 10 years after the death
of an eligible designated beneficiary) apply upon the designated
beneficiary's death.
(B) Employee with multiple designated beneficiaries. If an employee
described in paragraph (b)(2)(iii)(A) of this section has more than one
designated beneficiary, then whether section 401(a)(9)(H) applies is
determined based on the date of death of the oldest of the employee's
designated beneficiaries. Thus, section 401(a)(9)(H) will apply upon
the death of the oldest of the employee's designated beneficiaries if
that designated beneficiary is still alive on or after the effective
date of section 401(a)(9)(H) for the plan as determined under the rules
of paragraph (b)(2)(i) or (ii) of this section.
(C) Surviving spouse of the employee dies before employee's
required beginning date. If an employee described in paragraph
(b)(2)(iii)(A) of this section dies before the employee's required
beginning date and the employee's surviving spouse is waiting to begin
distributions until the year for which the employee would have been
required to begin distributions pursuant to section 401(a)(9)(B)(iv),
then, in applying the rules of this paragraph (b)(2)(iii), the
surviving spouse is treated as the employee. Thus, for example, if an
employee with a required beginning date of April 1, 2025, names the
employee's surviving spouse as the sole beneficiary of the employee's
interest in the plan, both the employee and the employee's surviving
spouse die before the effective date of section 401(a)(9)(H) for the
plan, and that spouse's designated beneficiary dies on or after that
effective date, then section 401(a)(9)(H) applies with respect to the
surviving spouse's designated beneficiary upon the death of that
designated beneficiary.
(iv) Qualified annuity exception--(A) In general. Section
401(a)(9)(H) does not apply to a commercial annuity (as defined in
section 3405(e)(6))--
(1) That is a binding annuity contract in effect as of December 20,
2019;
(2) Under which payments satisfy the requirements of 26 CFR
1.401(a)(9)-1 through 1.401(a)(9)-9 (revised as of April 1, 2020); and
(3) That satisfies the irrevocability requirements of paragraph
(b)(2)(iv)(B) of this section.
(B) Irrevocability requirements applicable to annuity contract. A
contract satisfies the requirements of this paragraph (b)(2)(iv)(B) if
the employee has made an irrevocable election before December 20, 2019,
as to the method and amount of annuity payments to the employee and any
designated beneficiary.
[[Page 10525]]
(3) Examples. The following examples illustrate the effective date
requirements of this paragraph (b).
(i) Example 1. Employer M maintains a defined contribution plan,
Plan X. Employee A died in 2017, at the age of 68, and designated A's
40-year-old non-disabled, non-chronically ill son, B, as the sole
beneficiary of A's interest in Plan X. Pursuant to a plan provision in
Plan X, B elected to take distributions over B's life expectancy under
section 401(a)(9)(B)(iii). B dies in 2024, after the effective date of
section 401(a)(9)(H). Because section 401(b)(5) of the SECURE Act
treats B as an eligible designated beneficiary, the rules of section
401(a)(9)(H)(iii) apply to B's beneficiaries. Therefore, A's remaining
interest in Plan X must be distributed by the end of 2034 (within 10
years of B's death).
(ii) Example 2. The facts are the same as in Example 1 in paragraph
(b)(3)(i) of this section except that B died in 2019. Because A's
designated beneficiary died before the effective date of section 401 of
the SECURE Act, the rules of section 401(a)(9)(H) do not apply to B's
beneficiaries.
(iii) Example 3. The facts are the same as in Example 1 in
paragraph (b)(3)(i) of this section except that, pursuant to a
provision in Plan X, B elected the 5-year rule under section
401(a)(9)(B)(ii). Accordingly, A's entire interest is required to be
distributed by the end of 2022. Because A died before January 1, 2020,
section 401(a)(9)(H) does not apply with respect to B. Therefore,
section 401(a)(9)(H)(i)(I) does not extend B's election to a 10-year
period. Although B's election requires A's entire interest to be
distributed by the end of 2022, the enactment of section
401(a)(9)(I)(iii)(II) (permitting disregard of 2020 when the 5-year
period applies) permits distribution of A's entire interest in the plan
to be delayed until the end of 2023.
(iv) Example 4. The facts are the same as in Example 1 in paragraph
(b)(3)(i) of this section except that A designates a see-through trust
that satisfies the requirements of Sec. 1.401(a)(9)-4(f)(2) as the
sole beneficiary of A's interest in Plan X. All of the trust
beneficiaries are alive as of January 1, 2020. The oldest of the trust
beneficiaries, C, dies in 2022. Because section 401(b)(5) of the SECURE
Act treats C as an eligible designated beneficiary, the rules of
section 401(a)(9)(H)(iii) apply to the other trust beneficiaries. Thus,
if the death of the oldest beneficiary is not disregarded under the
rules of Sec. 1.401(a)(9)-5(f)(2)(ii), A's remaining interest in Plan
X must be distributed by the end of 2032 (within 10 years of C's
death).
(v) Example 5. The facts are the same as in Example 4 in paragraph
(b)(3)(iv) of this section except that C dies in 2019. Because the
oldest designated beneficiary died before January 1, 2020, the rules of
section 401(a)(9)(H) do not apply to any of the other trust
beneficiaries.
(vi) Example 6. The facts are the same as in Example 1 in paragraph
(b)(3)(i) of this section except that B elected to purchase an annuity
that pays over B's lifetime with a 15-year certain period starting in
the calendar year following the calendar year of A's death. Because B
died after the effective date of section 401(a)(9)(H), the rules of
section 401(a)(9)(H)(iii) apply, and accordingly, the annuity may not
provide distributions any later than the end of 2034.
(c) Required and optional plan provisions--(1) Required provisions.
In order to satisfy section 401(a)(9), a plan must include the
provisions described in this paragraph (c)(1) reflecting section
401(a)(9). First, a plan generally must set forth the statutory rules
of section 401(a)(9), including the incidental death benefit
requirement in section 401(a)(9)(G). Second, a plan must provide that
distributions will be made in accordance with this section and
Sec. Sec. 1.401(a)(9)-2 through 1.401(a)(9)-9. A plan document also
must provide that the provisions reflecting section 401(a)(9) override
any distribution options in a plan inconsistent with section 401(a)(9).
A plan also must include any other provisions reflecting section
401(a)(9) that are prescribed by the Commissioner in revenue rulings,
notices, and other guidance published in the Internal Revenue Bulletin.
See Sec. 601.601(d) of this chapter.
(2) Optional provisions. A plan may also include optional
provisions governing plan distributions that do not conflict with
section 401(a)(9). For example, a defined benefit plan may include a
provision described in Sec. 1.401(a)(9)-3(b)(4)(ii) (requiring that
the 5-year rule apply to an employee who has a designated beneficiary).
Similarly, a defined contribution plan may provide for an election by
an eligible designated beneficiary as described in Sec. 1.401(a)(9)-
3(c)(5)(iii).
(d) Regulatory effective date--This section and Sec. Sec.
1.401(a)(9)-2 through 1.401(a)(9)-9 apply for purposes of determining
required minimum distributions for calendar years beginning on or after
January 1, 2022. For earlier calendar years, the rules of 26 CFR
1.401(a)(9)-1 through 1.401(a)(9)-9 (revised as of April 1, 2021)
apply.
Sec. 1.401(a)(9)-2 Distributions commencing during an employee's
lifetime.
(a) Distributions commencing during an employee's lifetime--(1) In
general. In order to satisfy section 401(a)(9)(A), the entire interest
of each employee must be distributed to the employee not later than the
required beginning date, or must be distributed, beginning not later
than the required beginning date, over the life of the employee or the
joint lives of the employee and a designated beneficiary or over a
period not extending beyond the life expectancy of the employee or the
joint life and last survivor expectancy of the employee and the
designated beneficiary. Under section 401(a)(9)(G), lifetime
distributions must satisfy the incidental death benefit requirements of
Sec. 1.401-1(b)(1).
(2) Amount required to be distributed for a calendar year. The
amount required to be distributed for each calendar year in order to
satisfy section 401(a)(9)(A) and (G) generally depends on whether the
amount to be distributed is from an individual account under a defined
contribution plan or is an annuity payment from a defined benefit plan
or under an annuity contract. For the method of determining the
required minimum distribution in accordance with section 401(a)(9)(A)
and (G) from an individual account under a defined contribution plan,
see Sec. 1.401(a)(9)-5. For the method of determining the required
minimum distribution in accordance with section 401(a)(9)(A) and (G) in
the case of annuity payments from a defined benefit plan or under an
annuity contract, see Sec. 1.401(a)(9)-6.
(3) Distributions commencing before required beginning date--(i) In
general. Lifetime distributions made before the employee's required
beginning date for calendar years before the employee's first
distribution calendar year, as defined in Sec. 1.401(a)(9)-
5(a)(2)(ii), need not be made in accordance with section 401(a)(9).
However, if distributions commence before the employee's required
beginning date under a particular distribution option (such as in the
form of an annuity) and, under the terms of that distribution option,
distributions to be made for the employee's first distribution calendar
year (or any subsequent calendar year) will fail to satisfy section
401(a)(9), then the distribution option fails to satisfy section
401(a)(9) at the time distributions commence.
(ii) Date distributions are treated as having begun. Except as
otherwise provided in paragraph (a)(3)(iii) of this
[[Page 10526]]
section and Sec. 1.401(a)(9)-6(j), distributions to the employee are
not treated as having begun in accordance with section 401(a)(9)(A)(ii)
until the employee's required beginning date, as determined in
accordance with paragraph (b)(1), (2), or (3) of this section,
whichever applies to the employee. The preceding sentence applies even
if the employee has received distributions before the employee's
required beginning date (either pursuant to plan terms that require
distributions to begin by an earlier date or pursuant to the employee's
election). Thus, even if payments have been made before the employee's
required beginning date, the rules of Sec. 1.401(a)(9)-3 will apply if
the employee dies before that date. For example, if A is an employee
who retires in 2023, the calendar year A attains age 71, and begins
receiving installment distributions from a profit-sharing plan over a
period not exceeding the joint life and last survivor expectancy of A
and A's spouse, benefits are not treated as having begun in accordance
with section 401(a)(9)(A)(ii) until April 1, 2025 (the April 1
following the calendar year in which A attains age 72). Consequently,
if A dies before April 1, 2025 (A's required beginning date),
distributions after A's death must be made in accordance with section
401(a)(9)(B)(ii) or (iii) and (iv) and Sec. 1.401(a)(9)-3 (addressing
payments to beneficiaries in cases in which required distributions have
not begun), and not section 401(a)(9)(B)(i) (addressing payments to
beneficiaries in cases in which required distributions have begun).
This is the case without regard to whether, before A's death, the plan
distributed the minimum distribution for the first distribution
calendar year (as defined in Sec. 1.401(a)(9)-5(a)(2)(ii)).
(iii) Exception for uniform required beginning date. If a plan
provides, in accordance with paragraph (b)(4) of this section, that the
required beginning date for purposes of section 401(a)(9) for all
employees is April 1 of the calendar year following the calendar year
described in paragraph (b)(1)(i) or (b)(2)(i)(A) of this section
(whichever applies to the employee), without regard to whether the
employee is a 5-percent owner, then an employee who dies on or after
the required beginning date determined under the plan terms is treated
as dying after distributions have begun in accordance with section
401(a)(9)(A)(ii) (even if the employee dies before the April 1
following the calendar year in which the employee retires).
(4) Distributions after death. Section 401(a)(9)(B)(i) provides
that, if the distribution of the employee's interest has begun in
accordance with section 401(a)(9)(A)(ii), and the employee dies before
the employee's entire interest has been distributed to the employee,
the remaining portion of the employee's interest must be distributed at
least as rapidly as under the distribution method being used under
section 401(a)(9)(A)(ii) as of the date of the employee's death. For
the method of determining the required minimum distribution in
accordance with section 401(a)(9)(B)(i) from an individual account
under a defined contribution plan, see Sec. 1.401(a)(9)-5. In the case
of annuity payments from a defined benefit plan or under an annuity
contract, see Sec. 1.401(a)(9)-6.
(b) Determination of required beginning date--(1) General rule.
Except as otherwise provided in this paragraph (b), the employee's
required beginning date (within the meaning of section 401(a)(9)(C)) is
April 1 of the calendar year following the later of--
(i) The calendar year in which the employee attains age 72; and
(ii) The calendar year in which the employee retires from
employment with the employer maintaining the plan.
(2) Employees born before July 1, 1949--(i) Prior law general rule.
With respect to an employee who was born before July 1, 1949, except as
otherwise provided in this paragraph (b), the employee's required
beginning date is April 1 of the calendar year following the later of--
(A) The calendar year in which the employee attains age 70\1/2\;
and
(B) The calendar year in which the employee retires from employment
with the employer maintaining the plan.
(ii) Attainment of age 70\1/2\. An employee attains age 70\1/2\ as
of the date six calendar months after the 70th anniversary of the
employee's birth. For example, if the date of birth of an employee who
retired in 2013 was June 30, 1943, the 70th anniversary of the
employee's birth was June 30, 2013 and the employee attained age 70\1/
2\ on December 30, 2013. Consequently, the employee's required
beginning date was April 1, 2014. However, if the employee's date of
birth was July 1, 1943, the 70th anniversary of the employee's birth
was July 1, 2013. The employee attained age 70\1/2\ on January 1, 2014,
and the employee's required beginning date was April 1, 2015.
(3) Required beginning date for 5-percent owner--(i) In general. In
the case of an employee who was born on or after July 1, 1949, and who
is a 5-percent owner, the employee's required beginning date is April 1
of the calendar year following the calendar year described in paragraph
(b)(1)(i) of this section. In the case of an employee who was born
before July 1, 1949, and who is a 5-percent owner, the employee's
required beginning date is April 1 of the calendar year following the
calendar year described in paragraph (b)(2)(i)(A) of this section.
(ii) Definition of 5-percent owner. For purposes of section
401(a)(9), a 5-percent owner is an employee who is a 5-percent owner
(as defined in section 416) with respect to the plan year ending in the
calendar year described in paragraphs (b)(1)(i) or (b)(2)(i)(A) of this
section, whichever applies to the employee.
(iii) No applicability to governmental plan or church plan. This
paragraph (b)(3) does not apply in the case of a governmental plan
(within the meaning of section 414(d)) or a church plan (as described
in Sec. 1.401(a)(9)-6(g)(3)).
(4) Uniform required beginning date. A plan is permitted to provide
that the required beginning date for purposes of section 401(a)(9) for
all employees is April 1 of the calendar year following the calendar
year described in paragraphs (b)(1)(i) or (b)(2)(i)(A) of this section
(whichever applies to the employee), without regard to whether the
employee is a 5-percent owner.
Sec. 1.401(a)(9)-3 Death before required beginning date.
(a) In general. Except as otherwise provided in Sec. Sec.
1.401(a)(9)-2(a)(3) and 1.401(a)(9)-6(j), if an employee dies before
the employee's required beginning date (and thus before distributions
are treated as having begun in accordance with section
401(a)(9)(A)(ii)), then--
(1) In the case of a defined benefit plan, distributions are
required to be made in accordance with paragraph (b) of this section,
and
(2) In the case of a defined contribution plan, distributions are
required to be made in accordance with paragraph (c) of this section.
(b) Distribution requirements in the case of a defined benefit
plan--(1) In general. Distributions from a defined benefit plan are
made in accordance with this paragraph (b) if the distributions satisfy
either paragraph (b)(2) or (3) of this section, whichever applies with
respect to the employee. The determination of whether paragraph (b)(2)
or (3) of this section applies is made in accordance with paragraph
(b)(4) of this section.
(2) 5-year rule. Except as otherwise provided in Sec. 1.401(a)(9)-
6(j) (relating to defined benefit plans subject to
[[Page 10527]]
limitations under section 436), distributions satisfy this paragraph
(b)(2) if the employee's entire interest is distributed by the end of
the calendar year that includes the fifth anniversary of the date of
the employee's death. For example, if an employee dies on any day in
2022, then in order to satisfy the 5-year rule in section
401(a)(9)(B)(ii), the entire interest generally must be distributed by
the end of 2027.
(3) Annuity payments. Distributions satisfy this paragraph (b)(3)
if annuity payments that satisfy the requirements of Sec. 1.401(a)(9)-
6 commence no later than the end of the calendar year following the
calendar year in which the employee died, except as provided in
paragraph (d) of this section (permitting a surviving spouse to delay
the commencement of distributions).
(4) Determination of which rule applies--(i) No plan provision. If
a defined benefit plan does not provide for an optional provision
described in paragraph (b)(4)(ii) or (b)(4)(iii) of this section
specifying the method of distribution after the death of an employee,
then distributions must be made as follows--
(A) If the employee has no designated beneficiary, as determined
under Sec. 1.401(a)(9)-4, distributions must satisfy paragraph (b)(2)
of this section; and
(B) If the employee has a designated beneficiary, distributions
must satisfy paragraph (b)(3) of this section.
(ii) Optional plan provisions. A defined benefit plan will not fail
to satisfy section 401(a)(9) merely because it includes a provision
specifying that the 5-year rule in paragraph (b)(2) of this section
(rather than the annuity payment rule in paragraph (b)(3) of this
section) will apply with respect to some or all of the employees who
have a designated beneficiary. Further, a plan need not have the same
method of distribution for the benefits of all employees in order to
satisfy section 401(a)(9).
(iii) Elections. A defined benefit plan may include a provision,
applicable to an employee who dies before the employee's required
beginning date and who has a designated beneficiary, that permits the
employee (or designated beneficiary) to elect whether the 5-year rule
in paragraph (b)(2) of this section or the annuity payment rule in
paragraph (b)(3) of this section applies. If a plan provides for this
type of an election, then--
(A) The plan must specify the method of distribution that applies
if neither the employee nor the designated beneficiary makes the
election;
(B) The election must be made no later than the end of the earlier
of the calendar year by which distributions must be made in order to
satisfy paragraph (b)(2) of this section and the calendar year in which
distributions would be required to begin in order to satisfy the
requirements of paragraph (b)(3) of this section or, if applicable,
paragraph (d) of this section; and
(C) As of the last date the election may be made, the election must
be irrevocable with respect to the beneficiary (and all subsequent
beneficiaries) and must apply to all subsequent calendar years.
(c) Distributions in the case of a defined contribution plan--(1)
In general. The requirements of this paragraph are satisfied if
distributions are made in accordance with paragraph (c)(2), (3), or (4)
of this section, whichever applies with respect to the employee. The
determination of whether paragraph (c)(2), (3), or (4) of this section
applies is made in accordance with paragraph (c)(5) of this section.
(2) 5-year rule. Distributions satisfy this paragraph (c)(2) if the
employee's entire interest is distributed by the end of the calendar
year that includes the fifth anniversary of the date of the employee's
death. For example, if an employee dies on any day in 2022, the entire
interest must be distributed by the end of 2027 in order to satisfy the
5-year rule in section 401(a)(9)(B)(ii). For purposes of this paragraph
(c)(2), if an employee died before January 1, 2020, then the 2020
calendar year is disregarded when determining the calendar year that
includes the fifth anniversary of the date of the employee's death.
(3) 10-year rule. Distributions satisfy this paragraph (c)(3) if
the employee's entire interest is distributed by the end of the
calendar year that includes the tenth anniversary of the date of the
employee's death. For example, if an employee dies on any day in 2021,
the entire interest must be distributed by the end of 2031 in order to
satisfy the 5-year rule in section 401(a)(9)(B)(ii), as extended to 10
years by section 401(a)(9)(H)(i).
(4) Life expectancy payments. Distributions satisfy this paragraph
(c)(4) if distributions that satisfy the requirements of Sec.
1.401(a)(9)-5 commence on or before the end of the calendar year
following the calendar year in which the employee died, except as
provided in paragraph (d) of this section (permitting a surviving
spouse to delay the commencement of distributions).
(5) Determination of which rule applies--(i) No plan provision. If
a defined contribution plan does not include an optional provision
described in paragraph (c)(5)(ii) or (c)(5)(iii) of this section
specifying the method of distribution after the death of an employee,
distributions must be made as follows--
(A) If the employee does not have a designated beneficiary, as
determined under Sec. 1.401(a)(9)-4, distributions must satisfy the 5-
year rule described in paragraph (c)(2) of this section;
(B) If the employee dies on or after the effective date of section
401(a)(9)(H) (as determined in Sec. 1.401(a)(9)-1(b)(2)(i) or (ii),
whichever applies to the plan) and has a designated beneficiary who is
not an eligible designated beneficiary, as determined under Sec.
1.401(a)(9)-4(e), distributions must satisfy the 10-year rule described
in paragraph (c)(3) of this section; and
(C) If the employee has an eligible designated beneficiary,
distributions must satisfy the life expectancy rule described in
paragraph (c)(4) of this section.
(ii) Optional plan provisions. A defined contribution plan will not
fail to satisfy section 401(a)(9) merely because it includes a
provision specifying that the 10-year rule described in paragraph
(c)(3) of this section (rather than the life expectancy rule described
in paragraph (c)(4) of this section) will apply with respect to some or
all of the employees who have an eligible designated beneficiary.
Further, a plan need not have the same method of distribution for the
benefits of all employees in order to satisfy section 401(a)(9).
(iii) Elections. A defined contribution plan may include a
provision, applicable to an employee who dies before the employee's
required beginning date and who has an eligible designated beneficiary,
that permits the employee (or eligible designated beneficiary) to elect
whether the 10-year rule in paragraph (c)(3) of this section or the
life expectancy rule in paragraph (c)(4) of this section applies. If a
plan provides for this type of election, then--
(A) The plan must specify the method of distribution that applies
if neither the employee nor the designated beneficiary makes the
election;
(B) The election must be made no later than end of the earlier of
the calendar year by which distributions must be made in order to
satisfy paragraph (c)(3) of this section and the calendar year in which
distributions would be required to begin in order to satisfy the
requirements of paragraph (c)(4) of this section or, if applicable,
paragraph (d) of this section; and
[[Page 10528]]
(C) As of the last date the election may be made, the election must
be irrevocable with respect to the beneficiary (and all subsequent
beneficiaries) and must apply to all subsequent calendar years.
(d) Permitted delay for surviving spouse beneficiaries. If the
employee's surviving spouse is the employee's sole beneficiary, then
the commencement of distributions under paragraph (b)(3) or (c)(4) of
this section may be delayed until the end of the calendar year in which
the employee would have attained age 72 (or the calendar year in which
the employee would have attained age 70\1/2\ in the case of an employee
born before July 1, 1949).
(e) Distributions that commence after surviving spouse's death--(1)
In general. If the employee's surviving spouse is the employee's sole
beneficiary and dies after the employee, but before distributions have
commenced under paragraph (d) of this section, then the 5-year rule in
paragraph (b)(2) or (c)(2) of this section, the 10-year rule in
paragraph (c)(3) of this section, and the annuity payment rules in
paragraph (b)(3) of this section or the life expectancy rules in
paragraph (c)(4) of this section are to be applied as if the surviving
spouse were the employee. For this purpose, the date of death of the
surviving spouse is substituted for the date of death of the employee.
(2) Remarriage of surviving spouse. If the delayed commencement in
paragraph (d) of this section applies to the surviving spouse of the
employee and the surviving spouse remarries but dies before
distributions have begun, then the rules in paragraph (d) of this
section are not available to the surviving spouse of the deceased
employee's surviving spouse.
(3) When distributions are treated as having begun to surviving
spouse. For purposes of section 401(a)(9)(B)(iv)(II), distributions are
considered to have begun to the surviving spouse of an employee on the
date, determined in accordance with paragraph (d) of this section, on
which distributions are required to commence to the surviving spouse
without regard to whether payments have actually been made before that
date. However, see Sec. 1.401(a)(9)-6(l) for an exception to this rule
in the case of an annuity that commences early.
Sec. 1.401(a)(9)-4 Determination of the designated beneficiary.
(a) Beneficiary designated under the plan--(1) In general. This
section provides rules for purposes of determining the designated
beneficiary under section 401(a)(9). For this purpose, a designated
beneficiary is an individual who is a beneficiary designated under the
plan.
(2) Entitlement to employee's interest in the plan. A beneficiary
designated under the plan is a person who is entitled to a portion of
an employee's benefit, contingent on the employee's death or another
specified event. The determination of whether a beneficiary designated
under the plan is taken into account for purposes of section 401(a)(9)
is made in accordance with paragraph (c) of this section or, if
applicable, paragraph (d) of this section.
(3) Specificity of beneficiary designation. A beneficiary need not
be specified by name in the plan or by the employee to the plan in
order for the beneficiary to be designated under the plan, provided
that the person who is to be the beneficiary is identifiable pursuant
to the designation. For example, a designation of the employee's
children as beneficiaries of equal shares of the employee's interest in
the plan is treated as a designation of beneficiaries under the plan
even if the children are not specified by name. The fact that an
employee's interest under the plan passes to a certain person under a
will or otherwise under applicable state law does not make that person
a beneficiary designated under the plan absent a designation under the
plan.
(4) Affirmative and default elections of designated beneficiary. A
beneficiary designated under the plan may be designated by a default
election under the terms of the plan or, if the plan so provides, by an
affirmative election of the employee (or the employee's surviving
spouse). The choice of beneficiary is subject to the requirements of
sections 401(a)(11), 414(p), and 417. See Sec. Sec. 1.401(a)(9)-8(d)
and (e) for rules that apply to qualified domestic relations orders.
(b) Designated beneficiary must be an individual. A person that is
not an individual, such as the employee's estate, is not a designated
beneficiary. If a person other than an individual is a beneficiary
designated under the plan, the employee will be treated as having no
designated beneficiary, even if individuals are also designated as
beneficiaries. However, see paragraph (f)(1) and (3) of this section
for a rule under which certain beneficiaries of a see-through trust
that is designated as the employee's beneficiary under the plan are
treated as the employee's beneficiaries under the plan rather than the
trust. In addition, the rules of this paragraph (b) do not apply to the
extent separate account treatment applies in accordance with Sec.
1.401(a)(9)-8(a).
(c) Rules for determining beneficiaries--(1) Time period for
determining the beneficiary. Except as provided in paragraphs (d) and
(f) of this section and Sec. 1.401(a)(9)-6(b)(2)(i), a person is a
beneficiary taken into account for purposes of section 401(a)(9) if
that person is a beneficiary designated under the plan as of the date
of the employee's death and none of the events described in paragraph
(c)(2) of this section has occurred with respect to that person by
September 30 of the calendar year following the calendar year of the
employee's death.
(2) Circumstances under which a beneficiary is disregarded as a
beneficiary of the employee. With respect to a beneficiary who was
designated as a beneficiary under the plan as of the date of the
employee's death (including an individual who is treated as having been
designated as a beneficiary pursuant to paragraph (f) of this section),
if any of the following events occurs by September 30 of the calendar
year following the calendar year of the employee's death, then that
beneficiary is not treated as a beneficiary--
(i) The beneficiary predeceases the employee;
(ii) The beneficiary is treated as having predeceased the employee
pursuant to a simultaneous death provision under applicable State law
or pursuant to a qualified disclaimer satisfying section 2518 that
applies to the entire interest to which the beneficiary is entitled; or
(iii) The beneficiary receives the entire benefit to which the
beneficiary is entitled.
(3) Examples. The following examples illustrate the rules of this
paragraph (c).
(i) Example 1. Employer M maintains a defined contribution plan,
Plan X. Employee A dies in 2022 having designated A's three children--
B, C, and D--as beneficiaries, each with a one-third share of A's
interest in Plan X. B executes a disclaimer within 9 months of A's
death and the disclaimer satisfies the other requirements of a
qualified disclaimer under section 2518. Pursuant to the qualified
disclaimer, B is disregarded as a beneficiary.
(ii) Example 2. The facts are the same as in Example 1 in paragraph
(c)(3)(i) of this section except that B does not execute a disclaimer
until 10 months after A's death. Even if the disclaimer is executed by
September 30 of the calendar year following the calendar year of A's
death, the disclaimer is not a qualified disclaimer (because B does not
meet the 9-month requirement of section 2518) and B remains a
designated beneficiary of A.
[[Page 10529]]
(iii) Example 3. The facts are the same as in Example 1 in
paragraph (c)(3)(i) of this section except that, in exchange for B's
disclaimer of the one-third share of A's interest in Plan X, C
transfers C's interest in real property to B. Because B has received
consideration for B's disclaimer of the one-third share, it is not a
qualified disclaimer under section 2518 and B remains a designated
beneficiary.
(iv) Example 4. The facts are the same as in Example 1 in paragraph
(c)(3)(i) of this section except that Charity E (an organization exempt
from taxation under section 501(c)(3)) also is a beneficiary designated
under the plan as of the date of A's death, with B, C, D, and Charity E
each having a one-fourth share of A's interest in Plan X. Plan X
distributes Charity E's one-fourth share of A's interest in the plan by
September 30 of the calendar year following the calendar year of A's
death. Accordingly, Charity E is disregarded as A's beneficiary, and B,
C, and D are treated as A's designated beneficiaries.
(v) Example 5. The facts are the same as in Example 1 in paragraph
(c)(3)(i) of this section except that A's spouse, F, also is a
beneficiary designated under the plan. A and F were residents of State
Z so that State Z law applies. The laws of State Z include a
simultaneous death provision under which two individuals who die within
a 120-hour period of one another are treated as predeceasing each
other. F dies four hours after A and under the laws of State Z, F is
treated as predeceasing A. Because, under applicable State law, F is
treated as predeceasing A, F is disregarded as a beneficiary of A.
(vi) Example 6. The facts are the same as in Example 1 in paragraph
(c)(3)(i) of this section except that B, who was alive as of the date
of A's death, dies before September 30 of the calendar year following
the calendar year of A's death. Prior to B's death, none of the events
described in paragraph (c)(2) of this section occurred with respect to
B. Accordingly, B is still a beneficiary taken into account for
purposes of section 401(a)(9) regardless of the identity of B's
successor beneficiaries.
(d) Application of beneficiary designation rules to surviving
spouse. This paragraph (d) applies in the case of distributions to
which Sec. 1.401(a)(9)-3(e) applies (because the employee's spouse is
the employee's sole beneficiary as of September 30 of the calendar year
following the calendar year of the employee's death, and the surviving
spouse dies before distributions to the spouse have begun). If this
paragraph (d) applies, then the determination of whether a person is a
beneficiary of the surviving spouse is made using the rules of
paragraph (c) of this section, except that the date of the surviving
spouse's death is substituted for the date of the employee's death.
Thus, a person is a beneficiary if that person is a beneficiary
designated under the plan as of the date of the surviving spouse's
death and remains a beneficiary as of September 30 of the calendar year
following the calendar year of the surviving spouse's death.
(e) Eligible designated beneficiaries--(1) In general. A designated
beneficiary of the employee is an eligible designated beneficiary if,
at the time of the employee's death, the designated beneficiary is--
(i) The surviving spouse of the employee;
(ii) A child of the employee who has not reached the age of
majority within the meaning of paragraph (e)(3) of this section;
(iii) Disabled within the meaning of paragraph (e)(4) of this
section;
(iv) Chronically ill within the meaning of paragraph (e)(5) of this
section;
(v) Not more than 10 years younger than the employee as determined
under paragraph (e)(6) of this section; or
(vi) A designated beneficiary of an employee if the employee died
before the effective date of section 401(a)(9)(H) described in Sec.
1.401(a)(9)-1(b)(2)(i) and (ii), whichever applies to the plan.
(2) Multiple designated beneficiaries--(i) In general. Except as
provided in paragraphs (e)(2)(ii) of this section (providing a special
rule for children), (g)(3)(ii) of this section (relating to applicable
multi-beneficiary trusts), and Sec. 1.401(a)(9)-8(a) (relating to
separate account treatment), if the employee has more than one
designated beneficiary, and at least one of those beneficiaries is not
an eligible designated beneficiary as determined in accordance with
paragraph (e)(1) of this section, then the employee is treated as not
having an eligible designated beneficiary.
(ii) Special rule for children. If any of the employee's designated
beneficiaries is an eligible designated beneficiary because the
beneficiary is the child of the employee who had not reached the age of
majority at the time of the employee's death, then the employee is
treated as having an eligible designated beneficiary even if the
employee has other designated beneficiaries who are not eligible
designated beneficiaries.
(3) Determination of age of majority. An individual reaches the age
of majority on the individual's 21st birthday.
(4) Disabled individual--(i) In general. Subject to the
documentation requirements of paragraph (e)(7) of this section, an
individual is disabled if, as of the date of the employee's death, the
individual is described in paragraph (e)(4)(ii) or (iii) of this
section, or paragraph (e)(4)(iv) of this section applies.
(ii) Disability defined for individual who is age 18 or older. An
individual who, as of the date of the employee's death, is age 18 or
older is disabled if, as of that date, the individual is unable to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment that can be expected to
result in death or to be of long-continued and indefinite duration.
(iii) Disability defined for individual who is not age 18 or older.
An individual who, as of the date of the employee's death, is not age
18 or older is disabled if, as of that date, that individual has a
medically determinable physical or mental impairment that results in
marked and severe functional limitations and that can be expected to
result in death or to be of long-continued and indefinite duration.
(iv) Use of social security disability determination. If the
Commissioner of Social Security has determined that, as of the date of
the employee's death, an individual is disabled within the meaning of
42 U.S.C. 1382c(a)(3), then that individual will be deemed to be
disabled within the meaning of this paragraph (e)(4).
(5) Chronically ill individual. An individual is chronically ill if
the individual is chronically ill within the definition of section
7702B(c)(2) and satisfies the documentation requirements of paragraph
(e)(7) of this paragraph. However, for purposes of the preceding
sentence, an individual will be treated as chronically ill under
section 7702B(c)(2)(A)(i) only if there is a certification from a
licensed health care practitioner (as that term is defined in section
7702B(c)(4)) that, as of the date of the certification, the individual
is unable to perform (without substantial assistance from another
individual) at least 2 activities of daily living for an indefinite
period which is reasonably expected to be lengthy in nature (and not
merely for 90 days).
(6) Individual not more than 10 years younger than the employee.
Whether a designated beneficiary is not more than 10 years younger than
the employee is determined based on the dates of birth of the employee
and the beneficiary. Thus, for example, if an employee's date of birth
is October 1, 1953, then the employee's beneficiary is not more than
[[Page 10530]]
10 years younger than the employee if the beneficiary was born on or
before October 1, 1963.
(7) Documentation requirements for disabled or chronically ill
individuals. This paragraph (e)(7) is satisfied with respect to an
individual described in paragraph (e)(1)(iii) or (iv) of this section
if documentation of the disability or chronic illness described in
paragraph (e)(4) or (5) of this section, respectively, is provided to
the plan administrator no later than October 31 of the calendar year
following the calendar year of the employee's death. For individuals
described in paragraph (e)(1)(iv) of this section, the documentation
must include a certification from a licensed health care practitioner
(as that term is defined in section 7702B(c)(4)).
(8) Applicability of definition of eligible designated beneficiary
to beneficiary of surviving spouse. In a
[…truncated; see source link]Indexed from Federal Register on February 24, 2022.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.