26 CFR § 1.417(e)-1 - Restrictions and valuations of distributions from plans subject to sections 401(a)(11) and 417.
(a) Scope—(1) In general. A plan does not satisfy the requirements of sections 401(a)(11) and 417 unless it satisfies the consent requirements, the determination of present value requirements and the other requirements set forth in this section. See section 401(a)(11) and § 1.401(a)–20 for other rules regarding the survivor annuity requirements.
(2) Additional requirements. See § 1.411(a)–11 for other rules applicable to the consent requirements.
(3) Accrued benefit. The definition of “accrued benefit” in § 1.411(a)–11 applies when that term is used in this section.
(b) Consent, etc. requirements—(1) General rule. Generally plans may not commence the distribution of any portion of a participant's accrued benefit in any form unless the applicable consent requirements are satisfied. No consent of the participant or spouse is needed for distribution of a QJSA or QPSA after the benefit is no longer immediately distributable (after the participant attains (or would have attained if not dead) the later of normal retirement age (as defined in section 411(a)(8)) or age 62). No consent of the spouse is needed for distribution of a QJSA at any time. After the participant's death, a benefit may be paid to a nonspouse beneficiary without the beneficiary's consent. A distribution cannot be made at any time in a form other than a QJSA unless such QJSA has been waived by the participant and such waiver has been consented to by the spouse. A QJSA is an annuity that commences immediately. Thus, for example, a plan may not offer a participant separating from service at age 45 a choice only between a single sum distribution at separation of service and a joint and survivor annuity that satisfies all the requirements of a QJSA except that it commences at normal retirement age rather than immediately. To satisfy this section, the plan must also offer a QJSA (i.e., an annuity that satisfies all the requirements for a QJSA including the requirement that it commences immediately).
(2) Consent.
(i) Written consent of the participant and, if the participant is married at the annuity starting date and the benefit is to be paid in a form other than a QJSA, the participant's spouse (or, if either the participant or the spouse has died, the survivor) is required before the commencement of the distribution of any part of an accrued benefit if the present value of the nonforfeitable benefit is greater than the cash-out limit in effect under § 1.411(a)–11(c)(3)(ii). No consent is valid unless the participant has received a general description of the material features, and an explanation of the relative values of, the optional forms of benefit available under the plan in a manner which would satisfy the notice requirements of section 417(a)(3). See § 1.417(a)(3)–1. No consent is required before the annuity starting date if the present value of the nonforfeitable benefit is not more than the cash-out limit in effect under § 1.411(a)–11(c)(3)(ii). After the annuity starting date, consent is required for the immediate distribution of the present value of the accrued benefit being distributed in any form, including a qualified joint and survivor annuity or a qualified preretirement survivor annuity, regardless of the amount of such present value.
(ii) In determining the present value of any nonforfeitable accrued benefit, a defined benefit plan is limited by the interest rate restriction as set forth in paragraph (d) of this section.
(iii) Paragraph (b)(2)(i) of this section applies to distributions made on or after October 17, 2000. For distributions prior to October 17, 2000, § 1.417(e)–1(b)(2)(i) in effect prior to October 17, 2000 (as contained in 26 CFR part 1 revised as of April 1, 2000) applies.
(3) Time of consent.
(i) Written consent of the participant and the participant's spouse to the distribution must be made not more than 90 days before the annuity starting date, and, except as otherwise provided in paragraphs (b)(3)(iii) and (b)(3)(iv) of this section, no later than the annuity starting date.
(ii) A plan must provide participants with the written explanation of the QJSA required by section 417(a)(3) no less than 30 days and no more than 90 days before the annuity starting date, except as provided in paragraph (b)(3)(iv) of this section regarding retroactive annuity starting dates. However, if the participant, after having received the written explanation of the QJSA, affirmatively elects a form of distribution and the spouse consents to that form of distribution (if necessary), a plan will not fail to satisfy the requirements of section 417(a) merely because the written explanation was provided to the participant less than 30 days before the annuity starting date, provided that the following conditions are met:
(A) The plan administrator provides information to the participant clearly indicating that (in accordance with the first sentence of this paragraph (b)(3)(ii)) the participant has a right to at least 30 days to consider whether to waive the QJSA and consent to a form of distribution other than a QJSA.
(B) The participant is permitted to revoke an affirmative distribution election at least until the annuity starting date, or, if later, at any time prior to the expiration of the 7-day period that begins the day after the explanation of the QJSA is provided to the participant.
(C) The annuity starting date is after the date that the explanation of the QJSA is provided to the participant.
(D) Distribution in accordance with the affirmative election does not commence before the expiration of the 7-day period that begins the day after the explanation of the QJSA is provided to the participant.
(iii) The plan may permit the annuity starting date to be before the date that any affirmative distribution election is made by the participant (and before the date that distribution is permitted to commence under paragraph (b)(3)(ii)(D) of this section), provided that, except as otherwise provided in paragraph (b)(3)(vii) of this section regarding administrative delay, distributions commence not more than 90 days after the explanation of the QJSA is provided.
(iv) Retroactive annuity starting dates.
(A) Notwithstanding the requirements of paragraphs (b)(3)(i) and (ii) of this section, pursuant to section 417(a)(7), a defined benefit plan is permitted to provide benefits based on a retroactive annuity starting date if the requirements described in paragraph (b)(3)(v) of this section are satisfied. A defined benefit plan is not required to provide for retroactive annuity starting dates. If a plan does provide for a retroactive annuity starting date, it may impose conditions on the availability of a retroactive annuity starting date in addition to those imposed by paragraph (b)(3)(v) of this section, provided that imposition of those additional conditions does not violate any of the rules applicable to qualified plans. For example, a plan that includes a single sum payment as a benefit option may limit the election of a retroactive annuity starting date to those participants who do not elect the single sum payment. A defined contribution plan is not permitted to have a retroactive annuity starting date.
(B) For purposes of this section, a “retroactive annuity starting date” is an annuity starting date affirmatively elected by a participant that occurs on or before the date the written explanation required by section 417(a)(3) is provided to the participant. In order for a plan to treat a participant as having elected a retroactive annuity starting date, future periodic payments with respect to a participant who elects a retroactive annuity starting date must be the same as the future periodic payments, if any, that would have been paid with respect to the participant had payments actually commenced on the retroactive annuity starting date. The participant must receive a make-up payment to reflect any missed payment or payments for the period from the retroactive annuity starting date to the date of the actual make-up payment (with an appropriate adjustment for interest from the date the missed payment or payments would have been made to the date of the actual make-up payment). Thus, the benefit determined as of the retroactive annuity starting date must satisfy the requirements of sections 417(e)(3), if applicable, and section 415 with the applicable interest rate and applicable mortality table determined as of that date. Similarly, a participant is not permitted to elect a retroactive annuity starting date that precedes the date upon which the participant could have otherwise started receiving benefits (e.g., in the case of an ongoing plan, the earlier of the participant's termination of employment or the participant's normal retirement age) under the terms of the plan in effect as of the retroactive annuity starting date. A plan does not fail to treat a participant as having elected a retroactive annuity starting date as described in this paragraph (b)(3)(iv)(B) merely because the distributions are adjusted to the extent necessary to satisfy the requirements of paragraph (b)(3)(v)(B) and (C) of this section relating to sections 415 and 417(e)(3).
(C) If the participant's spouse as of the retroactive annuity starting date would not be the participant's spouse determined as if the date distributions commence was the participant's annuity starting date, consent of that former spouse is not needed to waive the QJSA with respect to the retroactive annuity starting date, unless otherwise provided under a qualified domestic relations order (as defined in section 414(p)).
(D) A distribution payable pursuant to a retroactive annuity starting date election is treated as excepted from the present value requirements of paragraph (d) of this section under paragraph (d)(6) of this section if the distribution form would have been described in paragraph (d)(6) of this section had the distribution actually commenced on the retroactive annuity starting date. Similarly, annuity payments that otherwise satisfy the requirements of a QJSA under section 417(b) will not fail to be treated as a QJSA for purposes of section 415(b)(2)(B) merely because a retroactive annuity starting date is elected and a make-up payment is made. Also, for purposes of section 72(t)(2)(A)(iv), a distribution that would otherwise be one of a series of substantially equal periodic payments will be treated as one of a series of substantially equal periodic payments notwithstanding the distribution of a make-up payment provided for in paragraph (b)(3)(iv)(B) of this section.
(E) The following example illustrates the application of paragraph (b)(3)(iv)(D) of this section:
(v) Requirements applicable to retroactive annuity starting dates. A distribution is permitted to have a retroactive annuity starting date with respect to a participant's benefit only if the following requirements are met:
(A) The participant's spouse (including an alternate payee who is treated as the spouse under a qualified domestic relations order (QDRO), as defined in section 414(p)), determined as if the date distributions commence were the participant's annuity starting date, consents to the distribution in a manner that would satisfy the requirements of section 417(a)(2). The spousal consent requirement of this paragraph (b)(3)(v)(A) is satisfied if such spouse consents to the distribution under paragraph (b)(2)(i) of this section. The spousal consent requirement of this paragraph (b)(3)(v)(A) does not apply if the amount of such spouse's survivor annuity payments under the retroactive annuity starting date election is no less than the amount that the survivor payments to such spouse would have been under an optional form of benefit that would satisfy the requirements to be a QJSA under section 417(b) and that has an annuity starting date after the date that the explanation was provided.
(B) The distribution (including appropriate interest adjustments) provided based on the retroactive annuity starting date would satisfy the requirements of section 415 if the date the distribution commences is substituted for the annuity starting date for all purposes, including for purposes of determining the applicable interest rate and the applicable mortality table. However, in the case of a form of benefit that would have been excepted from the present value requirements of paragraph (d) of this section under paragraph (d)(6) of this section if the distribution had actually commenced on the retroactive annuity starting date, the requirement to apply section 415 as of the date distribution commences set forth in this paragraph (b)(3)(v)(B) does not apply if the date distribution commences is twelve months or less from the retroactive annuity starting date.
(C) In the case of a form of benefit that would have been subject to section 417(e)(3) and paragraph (d) of this section if distributions had commenced as of the retroactive annuity starting date, the distribution is no less than the benefit produced by applying the applicable interest rate and the applicable mortality table determined as of the date the distribution commences to the annuity form that corresponds to the annuity form that was used to determine the benefit amount as of the retroactive annuity starting date. Thus, for example, if a distribution paid pursuant to an election of a retroactive annuity starting date is a single-sum distribution that is based on the present value of the straight life annuity payable at normal retirement age, then the amount of the distribution must be no less than the present value of the annuity payable at normal retirement age, determined as of the distribution date using the applicable mortality table and applicable interest rate that apply as of the distribution date. Likewise, if a distribution paid pursuant to an election of a retroactive annuity starting date is a single-sum distribution that is based on the present value of the early retirement annuity payable as of the retroactive annuity starting date, then the amount of the distribution must be no less than the present value of the early retirement annuity payable as of the distribution date, determined as of the distribution date using the applicable mortality table and applicable interest rate that apply as of the distribution date.
(vi) Timing of notice and consent requirements in the case of retroactive annuity starting dates. In the case of a retroactive annuity starting date, the date of the first actual payment of benefits based on the retroactive annuity starting date is substituted for the annuity starting date for purposes of satisfying the timing requirements for giving consent and providing an explanation of the QJSA provided in paragraphs (b)(3)(i) and (ii) of this section, except that the substitution does not apply for purposes of paragraph (b)(3)(iii) of this section. Thus, the written explanation required by section 417(a)(3)(A) must generally be provided no less than 30 days and no more than 90 days before the date of the first payment of benefits and the election to receive the distribution must be made after the written explanation is provided and on or before the date of the first payment. Similarly, the written explanation may also be provided less than 30 days prior to the first payment of benefits if the requirements of paragraph (b)(3)(ii) of this section would be satisfied if the date of the first payment is substituted for the annuity starting date.
(vii) Administrative delay. A plan will not fail to satisfy the 90-day timing requirements of paragraphs (b)(3)(iii) and (vi) of this section merely because, due solely to administrative delay, a distribution commences more than 90 days after the written explanation of the QJSA is provided to the participant.
(viii) The following example illustrates the provisions of this paragraph (b)(3):
Employee E elects (with spousal consent) on December 2 to waive the QJSA and receive an immediate distribution in the form of a single life annuity. The plan may permit Employee E to receive payments with an annuity starting date of December 1, provided that the first payment is made no earlier than December 6 and the participant does not revoke the election before that date. The plan can make the remaining monthly payments on the first day of each month thereafter in accordance with its regular payment schedule.
(ix) The additional rules of this paragraph (b)(3) concerning the notice and consent requirements of section 417 apply to distributions on or after September 22, 1995. For distributions before September 22, 1995, the additional rules concerning the notice and consent requirements of section 417 in § 1.417(e)–1(b)(3) in effect prior to September 22, 1995 (see § 1.417(e)–1 (b)(3) in 26 CFR Part 1 revised as of April 1, 1995) apply.
(4) Delegation to Commissioner. The Commissioner, in revenue rulings, notices, and other guidance published in the Internal Revenue Bulletin, may modify, or provide additional guidance with respect to, the notice and consent requirements of this section. See § 601.601(d)(2)(ii)(b) of this chapter.
(c) Permitted distributions. A plan may not require that a participant or surviving spouse begin to receive benefits without satisfying paragraph (b) of this section while such benefits are immediately distributable, (see paragraph (b)(1) of this section). Once benefits are no longer immediately distributable, all benefits that the plan requires to begin must be provided in the form of a QJSA and QPSA unless the applicable written explanation, election and consent requirements of section 417 are satisfied.
(d) Present value requirement— (1) General rule— (i) Defined benefit plans—(A) In general. A defined benefit plan must provide that the present value of any accrued benefit and the amount (subject to sections 411(c)(3) and 415) of any distribution, including a single-sum distribution, must not be less than the amount calculated using the applicable mortality table described in paragraph (d)(2) of this section and the applicable interest rate described in paragraph (d)(3) of this section, as determined for the month described in paragraph (d)(4) of this section. In the case of an optional form of benefit payable before normal retirement age, the present value of the optional form determined in accordance with the preceding sentence may not be less than the present value of the accrued benefit payable at normal retirement age. In the case of an optional form of benefit payable on or after normal retirement age, the present value of the optional form determined in accordance with the first sentence of this paragraph (d)(1)(i)(A) may not be less than the present value of the immediate annuity (payable in the same form as the accrued benefit is expressed). The present value determined under this paragraph (d) also applies for purposes of determining whether consent for a distribution is required under paragraph (b) of this section.
(B) Payment of a portion of a participant's benefit. The rules of this paragraph (d)(1) apply with respect to a payment of only a portion of the accrued benefit in the same manner as these rules would apply to a distribution of the entire accrued benefit. See paragraph (d)(7) of this section for rules relating to such a bifurcation of a participant's accrued benefit.
(C) Special rules for applicable defined benefit plans. See section 411(a)(13) and § 1.411(a)(13)–1 for an exception from the rules of section 417(e)(3) and this paragraph (d) that applies to certain distributions from plans with lump sum-based benefit formulas.
(ii) Defined contribution plans. Because the accrued benefit under a defined contribution plan equals the account balance, a defined contribution plan is not subject to the requirements of this paragraph (d), regardless of whether the requirements of section 401(a)(11) apply to the plan.
(2) Applicable mortality table—(i) In general. The applicable mortality table for a calendar year is the mortality table that is prescribed by the Commissioner in guidance published in the Internal Revenue Bulletin. See § 601.601(d) of this chapter. This mortality table is to be based on the table specified under section 430(h)(3)(A), but without regard to section 430(h)(3)(C) or (D).
(ii) Mortality discounts—(A) In general. Except as provided in paragraph (d)(2)(ii)(B) of this section, the probability of death under the applicable mortality table is taken into account for purposes of determining the present value under this paragraph (d) without regard to the death benefits provided under the plan (other than a death benefit that is part of the normal form of benefit or part of another optional form of benefit, as described in § 1.411(d)–3(g)(6)(ii)(B), for which present value is determined).
(B) Special rule for employee-provided benefit. For purposes of determining the present value under this paragraph (d) with respect to the portion of the accrued benefit derived from employee contributions (that is determined in accordance with the rules of section 411(c)), the probability of death during the assumed deferral period, if any, is not taken into account. For purposes of the preceding sentence, the assumed deferral period is the period between the date of the present value determination and the assumed commencement date for the annuity attributable to the accrued benefit derived from employee contributions.
(C) Exception from requirement that QJSA be most valuable form of benefit. An optional form of benefit that is subject to the minimum present value requirement of this section is not treated as failing the requirement under § 1.401(a)–20, Q&A–16, that an optional form of benefit for a married participant may not be more valuable than the qualified joint and survivor annuity payable at the same time merely because, in applying the rules of this section in determining the amount of the optional form of benefit, the amount payable is calculated—
(1) Taking into account both the probability of death before retirement and any death benefit under the plan, or
(2) Using the present value factor for the employee-provided portion of the benefit determined under paragraph (d)(2)(ii)(B) of this section as the present value factor for the employer-provided portion of the benefit.
(3) Applicable interest rate—(i) In general. The applicable interest rate for a month is determined using the first, second, and third segment rates for that month under section 430(h)(2)(C), as modified pursuant to section 417(e)(3)(D) (and without regard to the segment rate stabilization rules of section 430(h)(2)(C)(iv)). These section 417(e) segment rates are specified by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin and are applied under rules similar to the rules under § 1.430(h)(2)–1(b). Thus, for example, in determining the present value of a straight life annuity, the first segment rate is applied with respect to payments expected to be made during the 5-year period beginning on the annuity starting date, the second segment rate is applied with respect to payments expected to be made during the 15-year period following the end of that 5-year period, and the third segment rate is applied with respect to payments expected to be made after the end of that 15-year period. The section 417(e) segment rates that are published by the Commissioner are to be used for this purpose without further adjustment.
(ii) Examples. The following examples illustrate the rules of paragraphs (d)(2) and (d)(3)(i) of this section:
(A) Example 1—(1) Facts. Plan A is a non-contributory defined benefit plan with a calendar-year plan year. The normal retirement age is 65, and all participant elections are made with proper spousal consent. Plan A includes an optional form of benefit that provides a single-sum distribution equal to the present value of the participant's accrued benefit. Plan A provides that the applicable interest rate for any distribution is determined using the segment rates as specified by the Commissioner for the month preceding the month containing the annuity starting date of the distribution. The applicable mortality table is the table specified by the Commissioner for the calendar year that contains the annuity starting date.
(2) Analysis of minimum amount of single-sum distribution. Participant P retires in November 2024 at age 60 and elects (with spousal consent) to receive a single-sum distribution. P has an accrued benefit of $2,000 per month payable as a life annuity beginning at the plan's normal retirement age of 65. The applicable mortality rates for 2024 apply. For purposes of this paragraph (d)(3)(ii)(A) (Example 1), the section 417(e) segment rates published by the Commissioner for October 2024 are assumed to be 3.00 percent, 4.00 percent, and 5.00 percent for the first, second, and third segment rates, respectively. The present value factor for a participant, age 60, for a deferred annuity payable at age 65, calculated based on these interest rates and the applicable mortality table for 2024, is 10.432. To satisfy the requirements of section 417(e)(3) and this paragraph (d), the single-sum distribution received by P cannot be less than $250,368 (that is, $2,000 × 12 × 10.432).
(B) Example 2—(1) Facts. The facts are the same as in paragraph (d)(3)(ii)(A)(1) of this section (Example 1), except that Plan A provides for mandatory employee contributions. Participant Q retires in November 2024 at age 60 and elects (with spousal consent) to receive a single-sum distribution of Q's entire accrued benefit. Q has an accrued benefit of $2,000 per month payable as a life annuity beginning at Plan A's normal retirement age of 65, consisting of an accrued benefit derived from employee contributions determined in accordance with section 411(c)(2) (Q's employee-provided accrued benefit) of $500 per month and an accrued benefit derived from employer contributions (Q's employer-provided accrued benefit) of $1,500 per month.
(2) Analysis of minimum amount of the employee-provided portion of the single-sum distribution. Pursuant to paragraph (d)(2)(ii)(B) of this section, the single-sum distribution used to settle Q's employee-provided accrued benefit may not be less than the present value of the employee-provided portion of Q's accrued benefit determined using the applicable interest and mortality rates described in paragraphs (d)(2)(i) and (d)(3)(i) of this section, but without taking into account the probability of death during the assumed deferral period in accordance with paragraph (d)(2)(ii)(B) of this section. The present value factor for a participant, age 60, for a deferred annuity payable at age 65, calculated based on the interest and mortality rates specified in paragraph (d)(3)(ii)(A) of this section (Example 1), taking the probability of death only after age 65 into account, is 10.704. To satisfy the requirement of section 417(e)(3) and this paragraph (d), the single-sum distribution received by Q with respect to the employee-provided portion of the accrued benefit may not be less than $64,224 (that is, $500 × 12 × 10.704).
(3) Analysis of minimum amount of the employer-provided portion of the single-sum distribution. The single-sum distribution made to settle Q's employer-provided accrued benefit may not be less than the present value of that portion of Q's accrued benefit determined using the applicable interest and mortality rates. However, for this purpose, Plan A is permitted to take into account the probability of death during the assumed deferral period in accordance with paragraph (d)(2)(ii)(A) of this section. The single-sum distribution received by Q with respect to the employer-provided portion of the accrued benefit may not be less than $187,776 (that is, $1,500 × 12 × 10.432).
(4) Analysis of minimum amount of the total single-sum distribution. To satisfy the requirements of section 417(e)(3) and this paragraph (d), the total single-sum distribution received by Q may not be less than the sum of the minimum single-sum distribution with respect to the employee-provided and employer-provided portions of the accrued benefit, or $252,000 ($64,224 + $187,776).
(5) Analysis of minimum amount of partial single-sum distribution. If Q were to receive a partial single-sum distribution (that is, a single-sum distribution that is less than $252,000) with the balance payable as an annuity, then, in accordance with paragraph (d)(7)(iii)(D) of this section, the plan must specify the portion of the participant's accrued benefit that is settled by that distribution of the partial single-sum distribution (unless the plan uses the same single-sum factor with respect to all portions of the accrued benefit). Because the present value factor for the employee-provided benefit cannot take into account the probability of death before age 65, the plan may use the same present value factor to determine the portion of the accrued benefit that is settled by the single-sum distribution that applies to both the employee-provided and the employer-provided portions of the accrued benefit only if the factor that is used does not take into account the probability of death before age 65.
(4) Time for determining interest rate and mortality table—(i) Interest rate general rule. Except as provided in paragraphs (d)(4)(v) or (vi) of this section, the applicable interest rate to be used for a distribution is the applicable interest rate determined under paragraph (d)(3) of this section for the applicable lookback month. The applicable lookback month for a distribution is the lookback month (as described in paragraph (d)(4)(iv) of this section) for the stability period (as described in paragraph (d)(4)(iii) of this section) that contains the annuity starting date for the distribution. The time and method for determining the applicable interest rate for each participant's distribution must be determined in a consistent manner that is applied uniformly to all participants in the plan.
(ii) Mortality table general rule. The applicable mortality table to be used for a distribution is the mortality table that is described in paragraph (d)(2)(i) of this section for the calendar year during which the stability period containing the annuity starting date begins.
(iii) Stability period. A plan must specify the period for which the applicable interest rate remains constant (the stability period). This stability period may be one calendar month, one plan quarter, one calendar quarter, one plan year, or one calendar year. This same stability period also applies to the applicable mortality table.
(iv) Lookback month. A plan must specify the lookback month that is used to determine the applicable interest rate with respect to a stability period. The lookback month may be the first, second, third, fourth, or fifth full calendar month preceding the first day of the stability period.
(v) Permitted average interest rate. A plan may apply the rules of paragraph (d)(4)(i) of this section by substituting a permitted average applicable interest rate with respect to the plan's stability period for the applicable interest rate determined under paragraph (d)(3) of this section for the applicable lookback month with respect to the plan's stability period. For this purpose, a permitted average applicable interest rate with respect to a stability period is the applicable interest rate that is computed using the average of the section 417(e) segment rates described in paragraph (d)(3) of this section for two or more consecutive months from among the first, second, third, fourth, and fifth calendar months preceding the first day of the stability period. For this paragraph (d)(4)(v) to apply, a plan must specify the manner in which the permitted average interest rate is computed.
(vi) Additional determination dates. The Commissioner may prescribe, in guidance published in the Internal Revenue Bulletin, other times that a plan may provide for determining the applicable interest rate. See § 601.601(d) of this chapter.
(vii) Example of determination of applicable interest rate—(A) Facts. The facts are the same as in paragraph (d)(3)(ii)(A)(1) of this section (Example 1), except that Plan A provides that the applicable interest rate for any annuity starting date is determined using the segment rates specified by the Commissioner for the third calendar month preceding the beginning of the plan quarter that contains the annuity starting date. Plan A also provides that the applicable mortality table is the table specified by the Commissioner for the calendar year that contains the beginning of the quarterly stability period.
(B) Analysis. The segment rates that apply for annuity starting dates during the period beginning October 1, 2024, and ending December 31, 2024, are the segment rates for July 2024. This plan design permits the applicable interest rate to be fixed for each plan quarter and for the applicable interest rate for all distributions made during each plan quarter to be determined before the beginning of the plan quarter.
(5) Use of alternative interest rate and mortality table. If a plan provides for use of an interest rate or mortality table other than the applicable interest rate or the applicable mortality table, the plan must provide that a participant's benefit must be at least as great as the benefit produced by using the applicable interest rate and the applicable mortality table. For example, if a plan provides for use of an interest rate of 7% and the UP–1984 Mortality Table (see § 1.401(a)(4)–12, Standard mortality table) in calculating single-sum distributions, the plan must provide that any single-sum distribution is calculated as the greater of the single-sum benefit calculated using 7% and the UP–1984 Mortality Table and the single-sum benefit calculated using the applicable interest rate and the applicable mortality table.
(6) Exceptions—(i) In general. This paragraph (d) (other than the provisions relating to section 411(d)(6) requirements in paragraph (d)(9) of this section) does not apply to the amount of a distribution paid in the form of an annual benefit that—
(A) Does not decrease during the life of the participant, or, in the case of a QPSA, the life of the participant's spouse; or
(B) Decreases during the life of the participant merely because of—
(1) The death of the survivor annuitant (but only if the reduction is to a level not below 50 percent of the annual benefit payable before the death of the survivor annuitant); or
(2) The cessation or reduction of a Social Security supplement or qualified disability benefit (as defined in section 411(a)(9)).
(ii) Example of Social Security level income option—(A) Facts. The facts are the same as in paragraph (d)(3)(ii)(A)(1) of this section (Example 1). Plan A also provides for an optional distribution in the form of a Social Security level income option that is actuarially equivalent to the straight life annuity payable at the same commencement date. Under this optional form, the participant receives a larger monthly payment until age 65, and a smaller monthly payment afterward, so that it is estimated that the participant will receive level monthly payments for life (taking into account the participant's estimated Social Security benefit beginning at age 65). Based on the plan's early retirement reduction factor of 0.65 at age 60, Participant R's reduced early retirement benefit payable as a straight life annuity benefit commencing at age 60 is $1,300 per month (which is less than the early retirement benefit that is actuarially equivalent to the accrued benefit determined using the applicable interest and mortality rates under section 417(e)(3)). Participant R's estimated Social Security benefit is $1,000 per month beginning at age 65. Plan A provides that actuarial equivalence is determined using a 6 percent interest rate and the mortality table set forth in Revenue Ruling 2001–62, 2001–53 IRB 632.
(B) Analysis of benefit calculation using plan factors. Using the plan's terms for determining actuarial equivalence (an interest rate of 6 percent and the mortality table set forth in Revenue Ruling 2001–62), the present value factor for a participant, age 60, with lifetime benefits commencing at age 65 is 7.800, and the present value factor for a temporary annuity payable to that participant until age 65 is 4.278. The benefit payable to Participant R in the form of a Social Security level income option (with a decrease of $1,000 occurring at age 65) that is actuarially equivalent to the early retirement benefit of $1,300 is $1,945.80 per month until age 65 and $945.80 per month thereafter.
(C) Analysis of minimum present value. Because the benefit payable under the Social Security level income option decreases at age 65 and the decrease is not on account of the death of the participant or a beneficiary or the cessation or reduction of a Social Security supplement or a qualified disability benefit, the exception under this paragraph (d)(6) from the minimum present value requirements of section 417(e)(3) does not apply to the benefits payable under the plan's Social Security level income option. As illustrated in paragraph (d)(3)(ii)(A) of this section (Example 1), to satisfy the requirements of section 417(e)(3) and this paragraph (d), the minimum present value of a benefit payable to Participant R at age 60 cannot be less than $250,368 (that is, $2,000 × 12 × 10.432).
(D) Conclusion. Based on the applicable interest rate and applicable mortality table under section 417(e)(3) that are assumed in paragraph (d)(3)(ii)(A) of this section (Example 1), the present value factor for a participant, age 60, with lifetime benefits commencing at age 65 is 10.432, and the present value factor for a temporary annuity payable until age 65 is 4.604. The present value of the benefit payable to Participant R under the Social Security level income option is $225,901 ($1,945.80 × 4.604 × 12 + $945.80 × 10.432 × 12). Because this present value is less than the minimum present value of a benefit payable to Participant R at age 60 ($250,368), the plan would fail to satisfy the minimum present value requirement of section 417(e)(3). However, see paragraph (d)(7)(ii)(C) of this section for a rule permitting a plan to provide for implicit bifurcation of a Social Security level income option.
(7) Application to portion of a participant's benefit—(i) In general. This paragraph (d)(7) provides rules under which the requirements of this paragraph (d) apply to the distribution of only a portion of a participant's accrued benefit. Paragraph (d)(7)(ii) of this section provides rules for how a participant's accrued benefit may be bifurcated into separate components for purposes of applying this paragraph (d). Paragraph (d)(7)(iii) of this section provides rules of application. Paragraph (d)(7)(iv) of this section provides certain limited section 411(d)(6) relief, and paragraph (d)(7)(v) of this section provides examples of the application of the rules of this paragraph (d)(7).
(ii) Bifurcation of accrued benefit—(A) Explicit plan-specified bifurcation. A plan is permitted to provide that the requirements of this paragraph (d) apply to a specified portion of a participant's accrued benefit as if that portion were the participant's entire accrued benefit. For example, a plan is permitted to provide that a distribution in the form of a single-sum payment described in this paragraph (d)(7)(ii)(A) is made to settle a specified percentage of the participant's accrued benefit. As another example, a plan is permitted to provide that a distribution in the form of a single-sum payment described in this paragraph (d)(7)(ii)(A) is made to settle the accrued benefit derived from contributions made by an employee. In both examples, the distribution must satisfy the requirements of this paragraph (d) with respect to the specified portion of the accrued benefit, and the remaining portion of the accrued benefit (the participant's total accrued benefit less the portion of the accrued benefit settled by the single-sum payment) can be paid in some other form of distribution that is available under the plan.
(B) Distribution of specified amount. A plan that provides for a distribution of a single-sum payment that is not described in paragraph (d)(7)(ii)(A) of this section satisfies the requirements of this paragraph (d) with respect to that distribution if the portion of the participant's accrued benefit, expressed in the normal form of benefit under the plan and commencing at normal retirement age (or at the current date, if later), that is not settled by the distribution is no less than the excess of—
(1) The participant's total accrued benefit expressed in that form; over
(2) The annuity payable in that form that is actuarially equivalent to the single-sum payment, determined using the applicable interest rate and the applicable mortality table.
(C) Bifurcation of Social Security level income option. A plan that provides for a Social Security level income option satisfies the requirements of this paragraph (d) with respect to the temporary annuity portion of the Social Security level income option if, under the terms of the plan—
(1) The portion of the participant's accrued benefit, expressed in the normal form of benefit under the plan and commencing at normal retirement age (or at the current date, if later), that is not paid in the form of the temporary annuity is no less than the excess, if any, of—
(i) The participant's total accrued benefit under the plan expressed in that form and commencing at that age; over
(ii) The annuity payable in that form commencing at that age that is actuarially equivalent to that temporary annuity, determined using the applicable interest rate and the applicable mortality table; and
(2) The portion of the participant's immediate annuity (payable in the same form as the accrued benefit is expressed) that is not paid in the form of the temporary annuity is no less than the excess, if any, of—
(i) The participant's immediate annuity (payable in the same form as the accrued benefit is expressed); over
(ii) The immediate annuity payable in that form that is actuarially equivalent to that temporary annuity, determined using the applicable interest rate and the applicable mortality table.
(D) Social Security level income option. For purposes of paragraph (d)(7)(ii)(C) of this section, a Social Security level income option is an optional form of benefit under which a participant's accrued benefit is paid in the form of an annuity for the life of the participant with additional temporary annuity payments that cease at the participant's assumed Social Security commencement age and that do not exceed the participant's estimated Social Security benefit at that age. For this purpose, a participant's estimated Social Security benefit is the estimated amount of old-age insurance benefits for the participant under title II of the Social Security Act (as amended) and the assumed Social Security commencement age is an age that is not later than the age as of which the participant is entitled to those benefits without reduction on account of age.
(iii) Rules of operation—(A) Multiple distribution options. If a participant selects different distribution options with respect to two separate portions of the participant's accrued benefit that were determined in accordance with paragraph (d)(7)(ii) of this section, then the two different distribution options are treated as two separate optional forms of benefit for purposes of applying the requirements of section 417(e)(3) and this paragraph (d), even if the distribution options have the same annuity starting date. Thus, if the exception from the requirements of section 417(e)(3) and this paragraph (d) that is contained in paragraph (d)(6) of this section applies to one of those optional forms of benefit, then this paragraph (d) applies only to the other optional form of benefit.
(B) Repeated application of rule. If a participant's accrued benefit has been bifurcated in accordance with paragraph (d)(7)(ii) of this section, then the provisions of paragraph (d)(7)(ii) of this section may be applied again to bifurcate the remaining accrued benefit.
(C) Requirement to use explicit plan-specified bifurcation in certain cases—(1) Section 411(d)(6)—protected optional form. If the amount of a distribution in an optional form of benefit to which this paragraph (d) applies is determined by reference to the portion of a participant's accrued benefit as of the applicable amendment date for an amendment that eliminates that optional form of benefit (but, in accordance with section 411(d)(6), retains the optional form of benefit with respect to benefits accrued as of the applicable amendment date), then the plan must provide for explicit bifurcation of the accrued benefit as described in paragraph (d)(7)(ii)(A) of this section.
(2) Single-sum available with respect to entire accrued benefit. If a plan provides that a single-sum distribution is available to settle a participant's entire accrued benefit, then, in order to also provide for a distribution in the form of a single-sum payment that settles only a portion of a participant's accrued benefit, the plan must provide for explicit bifurcation of the accrued benefit as described in paragraph (d)(7)(ii)(A) of this section.
(D) Application of different factors to different portions of the accrued benefit. If a plan provides for an early retirement benefit, a retirement-type subsidy, an optional form of benefit, or an ancillary benefit, that applies only to a portion of a participant's accrued benefit, and the plan provides for a distribution that settles some, but not all, of the participant's accrued benefit, then the plan must specify which portion of the participant's total accrued benefit is settled by that distribution. For example, if a plan had one set of early retirement factors that applied to the accrued benefit as of December 31, 2005, but a different set of early retirement factors that applied to benefit accruals earned after that date, and the plan provides for a single-sum distribution that settles only a portion of a participant's accrued benefit, then the plan must specify which portion of the accrued benefit is settled by that distribution (in order to determine which early retirement factors apply to the remaining portion of the accrued benefit).
(iv) Limited section 411(d)(6) anti-cutback relief. This paragraph (d)(7)(iv) applies in the case of a plan that, for plan years beginning before January 1, 2017, uses the section 417(e)(3) applicable interest rate and applicable mortality table to calculate the amount of a distribution that is made to settle a portion of the accrued benefit if, pursuant to this paragraph (d)(7), the requirements of section 417(e)(3) and this paragraph (d) need not apply to the distribution. In such a case, section 411(d)(6) is not violated merely because, in accordance with this paragraph (d)(7), the plan is amended on or before December 31, 2017, to provide that the amount of a distribution described in the preceding sentence is determined for an annuity starting date on or after the applicable amendment date (within the meaning of § 1.411(d)–3(g)(4)) using the same actuarial assumptions that apply to calculate the amount of a distribution in the same form of benefit that is made to settle the participant's entire accrued benefit.
(v) Examples. The following examples illustrate the rules of this paragraph (d)(7). Unless otherwise indicated, these examples are based on the following assumptions: The taxpayers elect to apply the rules of this paragraph (d)(7) in 2016; each plan is a noncontributory defined benefit plan with a calendar-year plan year and a normal retirement age of age 65; a one-year stability period coinciding with the calendar year and a two-month lookback are used for determining the applicable interest rate; and all participant elections are made with proper spousal consent. The November 2015 segment rates are 1.76%, 4.15% and 5.13%.
(A)
(1) Plan A offers a number of optional forms of payment, including a qualified joint and survivor annuity and a single-sum payment. The single-sum payment is equal to the present value of the participant's immediate benefit (but not less than the present value of the participant's accrued benefit payable at normal retirement age) using the applicable interest and mortality rates under section 417(e)(3). The amount of the joint and survivor annuity is determined using plan factors that are not based on the applicable interest and mortality rates under section 417(e)(3). Plan A permits a participant to elect to receive a percentage of the accrued benefit as a single sum and the remainder in any annuity form provided under the plan, with the amount of the single-sum payment determined by multiplying the amount that would be payable if the entire benefit were paid as a single sum by the percentage of the accrued benefit settled by the single-sum payment.
(2) Participant S retires at age 62 in 2016, with an accrued benefit of $1,000 per month payable as a straight life annuity at normal retirement age. Participant S is eligible for an unreduced early retirement benefit and can therefore collect a straight life annuity benefit of $1,000 per month beginning immediately. Alternatively, Participant S can elect to receive the benefit in other forms, including a single-sum payment of $168,516 (based on the applicable interest and mortality rates under section 417(e), which are the November 2015 segment rates and the 2016 applicable mortality table), or a 100% joint and survivor annuity of $850 per month (based on the plan's actuarial equivalence factors). Participant S elects to receive 25% of the accrued benefit in the form of a single-sum payment and the remaining 75% of the accrued benefit as a 100% joint and survivor annuity.
(3) Participant S receives a single-sum payment with respect to 25% of the accrued benefit. Accordingly, this single-sum payment is equal to 25% of the full single-sum amount, or $42,129. The remaining portion of the accrued benefit is 75% of the total accrued benefit, or $750 per month payable as a straight life annuity at normal retirement age.
(4) To settle the remaining portion of the accrued benefit, in addition to the single-sum payment of $42,129, Participant S receives a 100% joint and survivor annuity in the amount of $637.50 per month, which is determined by applying the plan's unreduced early retirement and actuarial equivalence factors to the remaining portion of the accrued benefit of $750 per month payable as a straight life annuity at normal retirement age. The joint and survivor annuity benefit is not subject to the minimum present value requirements of section 417(e)(3) because it is treated as a separate optional form of benefit under paragraph (d)(7)(iii)(A) of this section.
(B)
(1) Plan B is a contributory defined benefit plan that permits a participant to elect a single sum distribution equal to the participant's employee contributions, accumulated with interest, with the remainder payable as an annuity. Plan B provides that the probability of death before normal retirement age is not taken into account for purposes of determining actuarial equivalence between the single-sum payment and an annuity at normal retirement age. Based on the applicable mortality table for 2016 and the November 2015 segment rates, the deferred annuity factor at age 60 for lifetime payments commencing at age 65 (determined without taking mortality before age 65 into account) is 10.209.
(2) Participant T retires at age 60 in 2016 with an accrued benefit of $1,500 per month payable as a straight life annuity commencing at normal retirement age. For benefits commencing at age 60, Plan B provides for an early retirement reduction factor of 75% and an actuarial equivalence factor of 98% for adjusting a straight life annuity to a 10-year certain and life annuity, neither of which is based on the applicable interest and mortality rates under section 417(e)(3). Participant T's benefit commencing at age 60 in the form of a 10-year certain and life annuity would be $1,500 × 75% × 98% = $1,102.50 per month. Participant T elects to receive a single sum payment of $32,000 equal to T's accumulated contributions with interest, and the remainder as a 10-year certain and life annuity.
(3) The single-sum payment elected by Participant T is a distribution that is determined by reference to Participant T's contributions and interest, and not by reference to a specified portion of the participant's accrued benefit. Therefore, the single-sum payment is not described in paragraph (d)(7)(ii)(A) of this section. In order to satisfy paragraph (d)(7)(ii)(B) of this section, the portion of the participant's accrued benefit that is not settled by the single-sum payment must be no less than the excess of (A) the participant's total accrued benefit over (B) the annuity that is actuarially equivalent to the single-sum payment, (determined using the applicable interest and mortality rates under section 417(e)(3) as applicable), both expressed in the normal form of benefit commencing at normal retirement age. The amount of that actuarially equivalent annuity is determined by dividing Participant T's single-sum payment of $32,000 by the deferred annuity factor for lifetime payments commencing at age 65 under the terms of Plan B (10.209, not considering mortality for the deferral period) and dividing by 12 for an actuarially equivalent monthly benefit commencing at age 65 of $261.21. Thus, in order to satisfy paragraph (d)(7)(ii)(B) of this section, the remaining portion of T's accrued benefit must be at least $1,238.79 per month ($1,500.00−$261.21) payable as a straight life annuity at normal retirement age.
(4) Based on Plan B's early retirement and optional form factors applied to the remaining portion, the annuity benefit payable to Participant T in the form of a 10-year certain and life annuity beginning at age 60 cannot be less than $910.51 per month ($1,238.79 × 75% × 98%). Participant T receives this in addition to the single-sum payment of $32,000. The 10-year certain and life benefit is not subject to the minimum present value requirements of section 417(e)(3) because it is treated as a separate optional form of benefit under paragraph (d)(7)(iii)(A) of this section.
(5) If, instead, Plan B's terms had provided for a single-sum payment equal to the present value of the participant's employee-provided accrued benefit as determined under section 411(c)(3), then the plan is determining the single-sum payment as the present value of a specified portion of the accrued benefit. In such a case, the plan is using explicit bifurcation as described in paragraph (d)(7)(ii)(A) of this section and the single-sum payment would have to be set equal to the present value, determined under Plan B's terms, of T's employee-provided accrued benefit (which may or may not be equal to T's accumulated contributions and interest, depending on the plan's terms). The remaining annuity benefit payable to Participant T would have been based on an accrued benefit equal to $1,500 per month minus the amount of T's employee-provided accrued benefit.
(C)
(1) The facts are the same as in paragraph (d)(7)(v)(B)(1) of this section (Example 2), except that Plan B also offers a single-sum payment option with respect to a participant's entire benefit. The single-sum payment is determined as the present value of the participant's early retirement benefit (but no less than the present value of the participant's accrued benefit) using the applicable interest and mortality rates under section 417(e)(3). Based on the applicable mortality table for 2016 and the November 2015 segment rates, the immediate annuity factor for lifetime payments commencing at age 60 is 14.632. Under the terms of the plan, the early retirement benefit payable as a straight life annuity to Participant T at age 60 with respect to T's full accrued benefit is $1,125 ($1,500 × 75%), and the corresponding single-sum amount payable to T is $1,125 × 14.632 × 12 = $197,532. (Note that this amount is larger than the age-60 present value of T's accrued benefit without taking mortality before age 65 into account, $1,500 × 10.209 × 12 = $183,762.) Participant T elects to receive a partial single-sum payment of $32,000, equal to T's accumulated contributions with interest and to take the remaining accrued benefit in the form of a 10-year certain and life annuity commencing at age 60.
(2) Because the plan also provides for a single-sum payment option with respect to a participant's entire benefit, pursuant to paragraph (d)(7)(iii)(C)(2) of this section the partial single-sum payment must be determined pursuant to the explicit bifurcation rules of paragraph (d)(7)(ii)(A) of this section.
(3) The portion of the participant's accrued benefit that is settled by the single-sum payment of $32,000 is determined as the amount that bears the same ratio to the total accrued benefit as that single-sum payment bears to the single-sum payment with respect to the entire accrued benefit (($32,000 ÷ $197,532) × $1,500), which is $243 per month payable as a straight life annuity at normal retirement age. Thus, the remaining portion of the accrued benefit is $1,257.00 per month payable as a straight life annuity at normal retirement age.
(4) Based on Plan B's early retirement and optional form factors applied to the remaining portion, the annuity benefit payable to Participant T in the form of a 10-year certain and life annuity beginning at age 60 is $923.90 per month ($1,257 × 75% × 98%). Participant T receives this benefit in addition to the single sum payment of $32,000. The 10-year certain and life benefit is not subject to the minimum present value requirements of section 417(e)(3) because it is treated as a separate optional form of benefit under paragraph (d)(7)(iii)(A) of this section.
(D)
(1) Plan C was amended to freeze benefits under a traditional defined benefit formula as of December 31, 2016, and to provide benefits under a cash balance formula beginning January 1, 2017. The plan provides that participants may elect separate distribution options for the portion of the benefit accrued under the traditional formula as of December 31, 2016, and the portion of the benefit earned under the cash balance formula. Furthermore, the plan provides that a participant may elect to receive a single-sum payment only with respect to the portion of the benefit earned under the cash balance formula.
(2) In accordance with paragraph (d)(7)(ii)(A) of this section, Plan C provides for an explicitly bifurcated accrued benefit because the portion of the accrued benefit settled by a distribution is determined separately for the portion under the traditional formula and the portion under the cash balance formula. As provided under paragraph (d)(7)(iii)(A) of this section, a single-sum payment under the cash balance formula and a distribution option under the traditional formula are treated as two separate optional forms of benefit for purposes of applying the provisions of the plan implementing the requirements of section 417(e)(3) and this paragraph (d). Therefore, whether a participant elects to receive a single-sum payment of the portion of the benefit earned under the cash balance formula does not affect whether the distribution elected with respect to the portion of the benefit earned as of December 31, 2016, is subject to the minimum present value requirements of section 417(e)(3).
(E)
(1) The facts are the same as in paragraph (d)(7)(v)(D)(1) of this section (Example 4), except that Plan C also permits a participant to elect, with respect to the cash balance portion of the benefit, to receive a percentage of that portion as a single sum and the remainder in any annuity form provided under the plan, with the amount of the single-sum payment determined by multiplying the amount that would be payable if the entire cash balance portion were paid as a single sum by the percentage of the cash balance portion settled by the single-sum payment. Participant W retires at age 65, with an accrued benefit under the traditional defined benefit formula (earned as of December 31, 2016) of $500 per month payable as a straight life annuity at normal retirement age and a cash balance hypothetical account balance of $45,000. Based on Plan C's actuarial equivalence factors, Participant W's accrued benefit derived from the cash balance hypothetical account is $320 per month, payable as a straight life annuity at normal retirement age. Participant W elects to receive 1/3 or $15,000 of the current hypothetical account balance in the form of a single sum and to receive the remainder of the total accrued benefit as a straight life annuity.
(2) Under the analysis set forth in paragraph (d)(7)(v)(D)(1) of this section (Example 4), Plan C provides for an explicitly bifurcated accrued benefit with respect to the traditional defined benefit portion and the cash balance portion because the portion of the accrued benefit settled by a distribution is determined separately for the portion under the traditional formula and the portion under the cash balance formula. As provided under paragraph (d)(7)(iii)(A) of this section, a single-sum payment under the cash balance formula and a distribution option under the traditional formula are treated as two separate optional forms of benefit for purposes of applying the provisions of the plan implementing the requirements of section 417(e)(3) and this paragraph (d). Thus, a separate distribution option may be chosen for each of these two portions, and section 417(e)(3) applies separately to each portion.
(3) In accordance with paragraph (d)(7)(ii)(A) of this section, Plan C also provides for an explicitly bifurcated accrued benefit with respect to the cash balance benefit because the plan provides that a distribution in the form of a single-sum payment is made to settle a specified percentage of the cash balance benefit. As provided under paragraph (d)(7)(iii)(A) of this section, the single-sum payment and the annuity selected by Participant W with respect to the cash balance benefit are treated as two separate optional forms of benefit for purposes of applying the provisions of the plan implementing the requirements of section 417(e)(3) and this paragraph (d). Thus, in accordance with paragraph (d)(7)(ii)(A) of this section, 1/3 of the cash balance hypothetical account is settled by the distribution paid out as a single sum (that is, $15,000 ÷ $45,000). After the single-sum payment, the remaining portion of the accrued benefit derived from the cash balance account is 2/3 of the initial accrued benefit derived from the cash balance account, or a straight life annuity at normal retirement age of $213.33 per month ( 2/3 × $320).
(4) To settle the remaining portion of the entire accrued benefit (the portion of the benefit attributable to service as of December 31, 2016 plus the remaining portion of the cash balance benefit), Participant W receives a monthly life annuity of $713.33 per month payable as a straight life annuity at normal retirement age (equal to the $500 straight life annuity at normal retirement age earned as of December 31, 2016 plus the remaining benefit derived from the cash balance portion of a straight life annuity payable at normal retirement age of $213.33 per month). Participant W's election to receive a single-sum payment of part of the benefit earned under the cash balance formula does not affect whether the remainder of Participant W's distribution is subject to the minimum present value requirements of section 417(e)(3).
(F)
(1) Plan D permits participants to elect a single-sum payment of up to $10,000 with the remaining benefit payable in the form of an annuity. Participant X retires in 2016 at age 55 with an accrued benefit of $1,000 per month payable as a straight life annuity at normal retirement age. Participant X is eligible for an unreduced early retirement benefit of $1,000 per month payable as a straight life annuity. Alternatively, based on Plan D's definition of actuarial equivalence (which is not based on the applicable interest and mortality rates under section 417(e)(3)), Participant X can receive an immediate benefit in the form of a 100% joint and survivor annuity of $800 per month. Participant X elects to receive a single-sum payment of $10,000, with the balance of the benefit payable as a 100% joint and survivor annuity beginning at age 55. Based on the applicable mortality table for 2016 and the November 2015 segment rates, the deferred annuity factor at age 55 for lifetime payments commencing at age 65 is 7.602.
(2) Plan D provides for a single-sum distribution of a portion of the participant's accrued benefit but, because the plan initially specifies the amount of the single-sum distribution (rather than the portion of the accrued benefit that is being settled by that distribution), Plan D is described in paragraph (d)(7)(ii)(B) of this section. As provided under paragraph (d)(7)(iii)(A) of this section, the single-sum payment and the joint-and-survivor annuity selected by Participant X are treated as two separate optional forms of benefit for purposes of applying the provisions of the plan implementing the requirements of section 417(e)(3) and this paragraph (d).
(3) A straight life annuity of $109.62 per month payable at normal retirement age is actuarially equivalent to the $10,000 single-sum payment, determined using the applicable mortality table for 2016 and the November 2015 segment rates ($10,000 ÷ 12 ÷ 7.602). Therefore, pursuant to paragraph (d)(7)(ii)(B) of this section, in order to satisfy this paragraph (d) the remaining portion of the accrued benefit after the single-sum payment of $10,000 must be no less than $890.38 per month payable as a straight life annuity at normal retirement age ($1,000.00−$109.62).
(4) Based on Plan D's early retirement and optional form factors, in order to satisfy this paragraph (d), the annuity benefit payable to Participant X in the form of a 100% joint-and-survivor annuity beginning at age 55 must be no less than $712.30 per month ($890.38 × .8). Participant X receives this benefit in addition to the single sum payment of $10,000. The joint and survivor annuity benefit is not subject to the minimum present value requirements of section 417(e)(3) because it is treated as a separate optional form of benefit under paragraph (d)(7)(iii)(A) of this section.
(G)
(1) Plan E provides for an unreduced early retirement benefit for participants who have met certain age and service requirements. Prior to amendment, Plan E permitted participants to elect a single-sum payment equal to the present value of the participant's unreduced early retirement benefit, determined using the applicable interest rate and applicable mortality table under section 417(e)(3). Plan E did not permit participants to elect a single-sum payment with respect to only a portion of their benefits. Effective December 31, 2012, Plan E was amended to eliminate the single-sum payment with respect to benefits accrued after that date.
(2) Participant Y retires on December 31, 2016, at age 60, after meeting Plan E's age and service requirements for an unreduced early retirement benefit. Participant Y's accrued benefit is $1,000 per month payable as a straight life annuity commencing at normal retirement age, of which $800 per month was accrued as of December 31, 2012. Participant Y elects to take a single-sum payment based on the benefit accrued as of December 31, 2012, with the remainder paid as a lifetime annuity commencing at age 60. Based on the applicable mortality table for 2016 and the November 2015 segment rates, the immediate annuity factor for lifetime payments commencing at age 60 is 14.632, so Y's single-sum payment is $800 × 12 × 14.632 = $140,467.20.
(3) In accordance with paragraph (d)(7)(iii)(C)(1) of this section, Plan E provides for explicit bifurcation of the accrued benefit as described in paragraph (d)(7)(ii)(A) of this section. Therefore, Participant Y must receive an annuity of $200 earned after December 31, 2012 in addition to the single-sum payment of $140,467. Plan E is not permitted to use the approach described in paragraph (d)(7)(ii)(B) of this section to reduce or eliminate the $200 annuity earned after December 31, 2012.
(H) Example of bifurcation of Social Security level income option—(1) Facts. The facts are the same as in paragraph (d)(6)(ii)(A) of this section (Example of Social Security level income option), except that Plan A is amended to provide for implicit bifurcation of a distribution paid in the form of a Social Security level income option, as described in paragraph (d)(7)(ii)(C) of this section. Thus, under the plan amendment, a distribution in the form of a Social Security level income option is bifurcated into a temporary annuity portion that ceases at the participant's assumed Social Security commencement age and a life annuity portion.
(2) Analysis of bifurcation requirements. If the requirements of paragraph (d)(7)(ii)(C) of this section are satisfied, then the temporary annuity portion of the Social Security level income option satisfies the minimum present value rules of section 417(e)(3) and this paragraph (d). In order to satisfy paragraph (d)(7)(ii)(C) of this section, there are two requirements that must be satisfied. First, the portion of the participant's accrued benefit that is not paid in the form of the temporary annuity must be no less than the excess of the participant's total accrued benefit over the annuity that is actuarially equivalent to the temporary annuity (determined using the applicable interest and mortality rates under section 417(e)(3)), both expressed in the normal form of benefit commencing at normal retirement age (or at the current date, if later). Second, the portion of the participant's immediate annuity that is not paid in the form of the temporary annuity must be no less than the excess of the participant's total immediate annuity over the immediate annuity that is actuarially equivalent to the temporary annuity (determined using the applicable interest and mortality rates under section 417(e)(3)), both expressed in the form of benefit in which the accrued benefit is expressed but commencing at the current age.
(3) Analysis of minimum portion of accrued benefit payable as lifetime annuity. A temporary annuity that is payable from age 60 to 65 in the amount of $1,000 per month is actuarially equivalent, determined using the applicable interest rate and applicable mortality table under section 417(e)(3), to a straight life annuity of $441.33 per month payable at normal retirement age. Therefore, under the amendment, the portion of Participant R's accrued benefit that is not paid in the form of that temporary annuity must be no less than $1,558.67 per month payable as a straight life annuity at normal retirement age ($2,000−$441.33). Because the portion of the accrued benefit that is not being paid in the form of the temporary annuity determined without regard to the amendment is $1,455.08 (the lifetime annuity of $945.80, divided by the early retirement factor of .65), the amendment increases that portion of the accrued benefit to $1,558.67, and the associated early retirement benefit commencing at age 60 is $1,013.14 ($1,558.67 × 0.65).
(4) Analysis of minimum portion of immediate benefit payable as lifetime annuity. A temporary annuity that is payable from age 60 to 65 in the amount of $1,000 per month is actuarially equivalent, determined using the applicable interest rate and applicable mortality table under section 417(e)(3), to a straight life annuity of $306.20 per month commencing at age 60. Therefore, under the amendment, the portion of the participant's immediate benefit that is not paid in the form of that temporary annuity must be no less than $993.80 ($1,300−$306.20). Because this minimum amount of immediate annuity is less than the otherwise calculated early retirement benefit at age 60 of $1,013.14, the amendment does not increase the immediate annuity above that amount.
(5) Conclusion. Because the portion of the benefit under the Social Security level income option that is not paid in the form of a temporary annuity satisfies the requirements of paragraph (d)(7)(ii)(C) of this section, the plan is permitted under paragraph (d)(7)(iii)(A) of this section to treat the temporary annuity and the remaining portion of the benefit as separate distribution options for purposes of this paragraph (d). Under paragraph (d)(7)(ii)(C) of this section, the temporary annuity portion of the Social Security level income option is treated as satisfying the minimum present value requirements of section 417(e) and this paragraph (d). Because the lifetime annuity portion of the Social Security level income option is non-decreasing during the lifetime of the participant, that portion is described in paragraph (d)(6) of this section and is therefore excepted from the requirements of section 417(e)(3). Thus, under the amendment, the combined payments payable to Participant R under the Social Security level income option of $2,013.14 per month until age 65 and $1,013.14 per month thereafter satisfy the requirements of section 417(e)(3) and this paragraph (d).
(8) Effective/applicability date—(i) In general. Except as otherwise provided in this paragraph (d)(8), this paragraph (d) applies to distributions with annuity starting dates in plan years beginning on or after January 1, 1995.
(ii) Optional delayed effective date of Retirement Protection Act of 1994 (RPA '94)(108 Stat. 5012) rules for plans adopted and in effect before December 8, 1994. For a plan adopted and in effect before December 8, 1994, the application of the rules relating to the applicable mortality table and applicable interest rate under paragraphs (d)(2) through (4) of this section is delayed to the extent provided in this paragraph (d)(8)(ii), if the plan provisions in effect on December 7, 1994, met the requirements of section 417(e)(3) and § 1.417(e)–1(d) as in effect on December 7, 1994 (as contained in 26 CFR part 1 revised April 1, 1995). In the case of a distribution from such a plan with an annuity starting date that precedes the optional delayed effective date described in paragraph (d)(8)(iv) of this section, and that precedes the first day of the first plan year beginning after December 31, 1999, the rules of paragraph (d)(9) of this section (which generally apply to distributions with annuity starting dates in plan years beginning before January 1, 1995) apply in lieu of the rules of paragraphs (d)(2) through (4) of this section. The interest rate under the rules of paragraph (d)(9) of this section is determined under the provisions of the plan as in effect on December 7, 1994, reflecting the interest rate or rates published by the Pension Benefit Guaranty Corporation (PBGC) and the provisions of the plan for determining the date on which the interest rate is fixed. The above described interest rate or rates published by the PBGC are those determined by the PBGC (for the date determined under those plan provisions) pursuant to the methodology under the regulations of the PBGC for determining the present value of a lump sum distribution on plan termination under 29 CFR part 2619 that were in effect on September 1, 1993 (as contained in 29 CFR part 2619 revised July 1, 1994).
(iii) Optional accelerated effective date of RPA '94 rules. This paragraph (d) is also effective for a distribution with an annuity starting date after December 7, 1994, during a plan year beginning before January 1, 1995, if the employer elects, on or before the annuity starting date, to make the rules of this paragraph (d) effective with respect to the plan as of the optional accelerated effective date described in paragraph (d)(8)(iv) of this section. An employer is treated as making this election by making the plan amendments described in paragraph (d)(8)(iv) of this section.
(iv) Determination of delayed or accelerated effective date by plan amendment adopting RPA '94 rules. The optional delayed effective date of paragraph (d)(8)(ii) of this section, or the optional accelerated effective date of paragraph (d)(8)(iii) of this section, whichever is applicable, is the date plan amendments applying both the applicable mortality table of paragraph (d)(2) of this section and the applicable interest rate of paragraph (d)(3) of this section are adopted or, if later, are made effective.
(v) Effective date for special rules applicable to the payment of a portion of a participant's benefit. Paragraph (d)(7) of this section applies to distributions with annuity starting dates in plan years beginning on or after January 1, 2017. However, taxpayers may elect to apply the rules of paragraph (d)(7) of this section to earlier periods.
(vi) Applicability date for provisions reflecting PPA '06 updates and other rules. Paragraphs (d)(1) through (4) of this section apply to distributions with annuity starting dates occurring on or after October 1, 2024. For earlier distributions, the rules of § 1.417(e)–1(d) as set forth in 26 CFR part 1, revised as of April 1, 2023, apply, except that taxpayers may instead apply the rules of paragraphs (d)(1) through (4) of this section.
(9) Relationship with section 411(d)(6). A plan amendment that changes the interest rate or the mortality assumptions used for the purposes described in paragraph (d)(1) of this section (including a plan amendment that changes the time for determining those assumptions) is generally subject to section 411(d)(6). However, for certain exceptions to the rule in the preceding sentence, see paragraph (d)(7)(iv) of this section (with respect to a plan amendment providing for bifurcation that was adopted before December 31, 2017), § 1.411(d)–3(a)(4) (regarding changes in lookback months and stability periods for mortality table and interest rate), § 1.411(d)–4, Q&A–2(b)(2)(v) (with respect to plan amendments relating to involuntary distributions), and section 1107(a)(2) of the Pension Protection Act of 2006, Public Law 109–280, 120 Stat. 780 (PPA '06) (with respect to certain plan amendments that were made pursuant to a change to the Internal Revenue Code made by PPA '06 or pursuant to regulations issued thereunder).
(b) The amendment provides that the transition amount for distributions in the years 1996–99 is a transition percentage of the excess, if any, of the amount that the single-sum distribution would have been under the plan provisions in effect prior to this amendment over the amount of the single sum described in paragraph (a)(i) of this Example 4. The transition percentages are 80% for 1996, decreasing to 60% for 1997, 40% for 1998 and 20% for 1999. The amendment also provides that the transition amount is zero for plan years beginning on or after the year 2000. Pursuant to paragraphs (d)(10)(iii) and (vi)(A) of this section, the amendment of Plan D is not considered to have reduced the accrued benefit of any participant in violation of section 411(d)(6).
(e) Special rules for annuity contracts—(1) General rule. Any annuity contract purchased by a plan subject to section 401(a)(11) and distributed to or owned by a participant must provide that benefits under the contract are provided in accordance with the applicable consent, present value, and other requirements of sections 401(a)(11) and 417 applicable to the plan.
(2) [Reserved]
(f) Effective dates—(1) Annuity contracts.
(i) Paragraph (e) of this section does not apply to contracts distributed to or owned by a participant prior to September 17, 1985, unless additional contributions are made under the plan by the employer with respect to such contracts.
(ii) In the case of a contract owned by the employer or distributed to or owned by a participant prior to the first plan year beginning after December 31, 1988, paragraph (e) of this section shall be satisfied if the annuity contracts described therein satisfy the requirements in §§ 1.401(a)–11T and 1.417(e)–1T. The preceding sentence shall not apply if additional contributions are made under the plan by the employer with respect to such contracts on or after the beginning of the first plan year beginning after December 31, 1988.
(2) Interest rates.
(i) A plan that uses the PBGC immediate interest rate as required by § 1.417(e)–1T(e) for distributions commencing in plan years beginning before January 1, 1987, shall be deemed to satisfy paragraph (d) of this section for such years.
(ii) For a special exception to the requirements of section 411(d)(6) for certain plan amendments that incorporate applicable interest rates, see section 1139(d)(2) of the Tax Reform Act of 1986.
(3) Other effective dates and transitional rules.
(i) Except as otherwise provided, a plan will be treated as satisfying sections 401(a)(11) and 417 for plan years beginning before the first plan year that the requirements of section 410(b) as amended by TRA 86 apply to such plan, if the plan satisfied the requirements in §§ 1.401(a)–11T and 1.417(e)–1T.
(ii) See § 1.401(a)–20 for other effective dates and transitional rules that apply to plans subject to sections 401(a)(11) and 417.