IRS Issues Final Rules on Benefit Option Explanations

March 28, 2006 ( - The IRS has issued final rules to ensure clear explanations are given to retiring pension plan participants of the benefit options available to them. reports that the latest installment of the IRS “relative value” rules permits simplified presentations of financial effect and relative value for a plan that offers a significant number of substantially similar optional benefit forms, as well as for a plan that lets the participant make separate benefit elections with respect to parts of a benefit.

The new publication addresses other cases in which there are significant differences in value among optional forms, and clarifies the rules regarding the disclosure of the financial effect of benefit payments.   According to the rules, the disclosure of the financial effect of an optional form of benefit (including a benefit available with a retroactive annuity starting date) must describe the amounts and timing of payments to the participant in that form during the participant’s lifetime, and the amounts and timing of payments after the death of the participant.

In addition, the final rule lets plans say that the qualified joint and survivor annuity (QJSA) benefit option is approximately equal in value to other options if their actuarial present value is between 95% and 105% of the QJSA’s actuarial present value.

These rules apply to single-sum distributions with annuity starting dates beginning on or after October 1, 2004.

The full text of the final rules is  here .