IRS Implements Annuity Disclosure Changes

December 19, 2003 ( - The Internal Revenue Service (IRS) will be requiring companies to provide more disclosure to retiring workers about their pension benefit options.

>Under the amendments, employers must provide their retiring employees a comparison of the relative value of a qualified preretirement survivor annuity (QPSA) compared to the value of the qualified joint and survivor annuity (QJSA). The increased disclosures come courtesy of amendments to Internal Revenue Code (IRC) Section 417(a)(3), the details of which were outlined in the December 17 Federal Register.  

Defined benefit plans and some defined contribution plans are required to provide vested benefits as a QJSA that provides at least half the value of benefits to a spouse, and is worth at least as much as the actuarial equivalent of a single annuity or any optional form of benefit under the plan.   A QPSA entitles a surviving spouse to at least the amount entitled under a QJSA if the participant dies before retiring.

The new regulations require plans to describe the relative value of optional forms of benefit to a QJSA as a “meaningful comparison” void of necessary additional calculations using interest or mortality assumptions, and such that the value of the optional benefit and QJSA are expressed in the same form.

Noting that disclosure of the relative value of every optional form of benefit may be burdensome, the proposed regulations provide a banding rule by which forms of benefit with actuarial values within 5% points of one another can be grouped for purposes of disclosing their relative value.

>With increased disclosures, the IRS’ intent is to allow workers to make a well-informed choice when confronted at the time of retirement with the decision to take a lump sum, a life annuity, or some other kind of payout from a retirement plan.

A copy of the final rules in the December 17 Federal Register can be found  here .