Treasury Delays Some DB Disclosure Rules

>The US Treasury Department has delayed the implementation date of explanations regarding qualified joint and survivor annuities.   Under the new Treasury timeline, the new rules cover annuities with start dates on or after February 1, 2006. In the meantime, interim rules will apply.

>However,  Announcement 2004-58 states that the delay does not apply to the extent a plan offers a lump sum payment that is less valuable than the qualified joint and survivor annuity offered by the plan.  

“Participants who are eligible for a subsidized early retirement annuity and a lump sum payment that does not include that subsidy shouldn’t have to pay for professional advice to find out the value of the subsidy that is lost if the lump sum is elected,” said Greg Jenner, Treasury’s Acting Assistant Secretary for Tax Policy.   “However, for plans offering lump sums that include this subsidy, we have delayed the effective date so that they may evaluate all of their optional forms.   This should be done in coordination with rules we hope to finalize next year regarding burdensome and complex forms of payment that are of de minimis value to participants.”

Optional Impact

Treasury noted that a number of commentators had requested a delay of the implementation citing, among other reasons, the need in some plans for sponsors to complete an extensive review and analysis of optional forms of benefit in order to prepare proper comparisons of the relative values of those optional forms to the QJSA, noting that recently proposed regulations under § 411(d)(6) would permit elimination of certain optional forms of benefit, which could require additional time to conduct a thorough review

Notwithstanding the extension, the existing effective date under § 1.417(a)(3)-1 of the regulations is retained for explanations with respect to any optional form of benefit that is subject to the requirements of § 417(e)(3) of the Code (e.g., single sums, distributions in the form of partial single sums in combination with annuities, or installment payment options) if the actuarial present value of that optional form is less than the actuarial present value (as determined under § 417(e)(3)) of the QJSA.

The announcement also clarifies certain issues that have been raised about the new required disclosure, including that a plan will not fail to satisfy the spousal protection rules merely because the plan’s lump sum payment is calculated using the statutory required interest and mortality assumptions, according to a news release.

As originally outlined, all other parts of the new regulations will take effectOctober 1, 2004 .

Initial Concerns

Final regulations were issued in  December 2003  in response to concerns that, in certain cases, the information provided to participants under § 417(a)(3) regarding available distribution forms does not adequately enable them to compare those distribution forms without professional advice.   In particular, Treasury noted that participants who are eligible for both subsidized annuity distributions and unsubsidized single-sum distributions could receive explanations that “…do not adequately explain the value of the subsidy that is foregone if the single-sum distribution is elected.”

Treasury went on to note that in such a case, “…merely disclosing the amount of the single-sum distribution and the amount of the annuity payments would not adequately enable a participant to make an informed comparison of the relative values of those distribution forms.”