FINAL FORM – IRS Issues Final Regs on Alternate Payment Forms

September 1, 2000 ( - The Internal Revenue Service has issued final regulations that permit defined contribution plans to eliminate some alternate forms of payment, as long as a lump sum option is available.

The regulations also allow some previously prohibited transfers between defined contribution plans (TD 8900).

The final regulations say that a defined contribution plan will not violate Internal Revenue Code Section 411(d)(6) merely because the plan is amended to eliminate or restrict payment of accrued benefits for a particular form of payment, as long as a single-sum distribution otherwise identical to the type of payment being eliminated is included as an alternative form of payment.

Proposed regulations had imposed additional restrictions on the single-sum distribution.

A number of items in March’s proposed regulations were eliminated based on comments received from the IRS, including:

  • A requirement that a defined contribution plan also include an identical alternative extended payment form, such as an annuity distribution,
  • A requirement that a modifying plan amendment cannot apply to any distribution that has an annuity starting date earlier than the 90th day after the participant receiving the distribution has been furnished a summary that reflects the amendment

In response to comments received, the IRS noted that permitting plan amendments eliminating an alternative form of payment would not result in the elimination of subsidized early retirement benefits.

The final regulations clarify that in mergers, acquisitions or changes in employment status, Section 411(d)(6) relief is provided for a voluntary transfer in which a participant is not eligible to receive immediate single-sum distribution of the entire accrued benefit that can be rolled over.

The final regulations become effective Sept. 6, and apply to plan amendments that are adopted and effective on or after that date, except as otherwise provided.

– Nevin Adams