Revised Regulations Concerning Disclosure of Relative Values of Optional Forms of Benefit, 14798-14804 [06-2844]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 71, Number 57 (Friday, March 24, 2006)]
[Rules and Regulations]
[Pages 14798-14804]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-2844]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9256]
RIN 1545-BD97


Revised Regulations Concerning Disclosure of Relative Values of 
Optional Forms of Benefit

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations under section 
417(a)(3) of the Internal Revenue Code concerning content requirements 
applicable to explanations of qualified joint and survivor annuities 
and qualified preretirement survivor annuities payable under certain 
retirement plans. These regulations affect sponsors, administrators, 
participants, and beneficiaries of certain retirement plans.

DATES: Effective date: These regulations are effective March 24, 2006.
    Applicability dates: The changes to Sec.  1.401(a)-20, A-36, and 
Sec.  1.417(a)(3)-1 apply as if they had been included in TD 9099 (68 
FR 70141). The change to Sec.  1.401(a)-20, Q&A-16, applies as if it 
had been included in TD 8219 (53 FR 31837).

FOR FURTHER INFORMATION CONTACT: Bruce Perlin or Linda Marshall at 
(202) 622-6090 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collections of information contained in these final regulations 
have been previously reviewed and approved

[[Page 14799]]

by the Office of Management and Budget in accordance with the Paperwork 
Reduction Act of 1995 (44 U.S.C. 3507(d)) under control number 1545-
0928.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    Section 417(a) provides rules under which a participant (with 
spousal consent) may elect to receive benefits in a form other than a 
qualified joint and survivor annuity (QJSA), including rules relating 
to required distributions. Specifically, section 417(a)(3) provides 
that a plan must provide to each participant, within a reasonable 
period before the annuity starting date, a written explanation that 
includes the following information: (1) The terms and conditions of the 
QJSA; (2) the participant's right to make an election to waive the QJSA 
form of benefit; (3) the effect of such an election; (4) the rights of 
the participant's spouse; and (5) the right to revoke an election to 
waive the QJSA form of benefit.
    Section 205 of the Employee Retirement Income Security Act of 1974 
(ERISA), Public Law 93-406 (88 Stat. 829), as subsequently amended, 
provides rules that are parallel to the rules of sections 401(a)(11) 
and 417 of the Internal Revenue Code (Code). In particular, section 
205(c)(3) of ERISA provides a rule parallel to the rule of section 
417(a)(3) of the Code.
    Section 1.401(a)-20, which provides rules governing the 
requirements for a waiver of the QJSA, was published in the Federal 
Register on August 19, 1988 (TD 8219) (53 FR 31837), effective August 
22, 1988. Section 1.401(a)-20, Q&A-36, as published in 1988, set forth 
requirements for the explanation that must be provided under section 
417(a)(3) as a prerequisite to waiver of a QJSA. Under those 
requirements, such a written explanation must contain a general 
description of the eligibility conditions and other material features 
of the optional forms of benefit and sufficient additional information 
to explain the relative values of the optional forms of benefit 
available under the plan (e.g., the extent to which optional forms are 
subsidized relative to the normal form of benefit or the interest rates 
used to calculate the optional forms). In addition, Sec.  1.401(a)-20, 
Q&A-36, as published in 1988, provided that the written explanation 
must comply with the requirements set forth in Sec.  1.401(a)-11(c)(3). 
Section 1.401(a)-11(c)(3), which was issued prior to the enactment of 
section 417, provides rules relating to written explanations that were 
required prior to a participant's election of a preretirement survivor 
annuity or election to waive a joint and survivor annuity. Section 
1.401(a)-11(c)(3)(i)(C) provides that such a written explanation must 
contain a general explanation of the relative financial effect of these 
elections on a participant's annuity.
    For a married participant, the QJSA must be at least as valuable as 
any other optional form of benefit payable under the plan at the same 
time. See Sec.  1.401(a)-20, Q&A-16. Further, the anti-forfeiture rules 
of section 411(a) prohibit a participant's benefit under a defined 
benefit plan from being satisfied through payment of a form of benefit 
that is actuarially less valuable than the value of the participant's 
accrued benefit expressed in the form of an annual benefit commencing 
at normal retirement age. These determinations must be made using 
reasonable actuarial assumptions. However, see section 417(e)(3) and 
Sec.  1.417(e)-1(d) for actuarial assumptions required for use in 
certain present value calculations.
    Final regulations under section 417(a)(3) regarding disclosure of 
the relative value and financial effect of optional forms of benefit as 
part of QJSA explanations provided to participants receiving qualified 
retirement plan distributions were published in the Federal Register on 
December 17, 2003. See Sec.  1.417(a)(3)-1 (68 FR 70141). The 2003 
regulations are generally effective for QJSA explanations provided with 
respect to annuity starting dates beginning on or after October 1, 
2004.
    The 2003 regulations were issued in response to concerns that, in 
certain cases, the information provided to participants under section 
417(a)(3) regarding available distribution forms pursuant to Sec.  
1.401(a)-20, Q&A-36, did not adequately enable them to compare those 
distribution forms without professional advice. In particular, 
participants who were eligible for early retirement benefits in the 
form of both subsidized annuity distributions and unsubsidized single-
sum distributions may have been receiving explanations that do not 
adequately disclose the value of the subsidy that is foregone if the 
single-sum distribution is elected. 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. The 2003 
regulations addressed this problem, as well as the problem of 
disclosure in other cases where there are significant differences in 
value among optional forms, and also clarified the rules regarding the 
disclosure of the financial effect of benefit payments.
    A number of commentators requested that the effective date of the 
2003 regulations be postponed. Among the reasons cited was 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. After 
consideration of these comments, the IRS issued Announcement 2004-58 
(2004-29 I.R.B. 66), which postponed the effective date of the 2003 
regulations under Sec.  1.417(a)(3)-1 for certain QJSA explanations.
    Consistent with Announcement 2004-58, proposed regulations were 
published in the Federal Register on January 28, 2005, to provide that 
the 2003 regulations are generally effective for QJSA explanations 
provided with respect to annuity starting dates beginning on or after 
February 1, 2006. On August 24, 2005, the IRS held a public hearing on 
the proposed regulations. Written comments responding to the notice of 
proposed rulemaking were also received. After consideration of all the 
comments, the proposed regulations are adopted, as amended by this 
Treasury decision. The revisions are discussed below.
    Under section 101 of Reorganization Plan No. 4 of 1978 (43 FR 
47713), the Secretary of the Treasury has interpretive jurisdiction 
over ERISA provisions that are parallel to the Code provisions 
addressed in these regulations. Therefore, these regulations apply for 
purposes of the parallel rules in section 205(c)(3) of ERISA, as well 
as for section 417(a)(3) of the Code.

Explanation of Provisions

    As provided in the 2005 proposed regulations, these final 
regulations provide that the 2003 regulations are generally effective 
for QJSA explanations provided with respect to annuity starting dates 
beginning on or after February 1, 2006. However, these regulations 
retain the effective date for Sec.  1.417(a)(3)-1 under the 2003 
regulations for explanations with

[[Page 14800]]

respect to any optional form of benefit that is subject to the 
requirements of section 417(e)(3) if the actuarial present value of 
that optional form is less than the actuarial present value (as 
determined under section 417(e)(3)) of the QJSA. Thus, for example, a 
QJSA explanation provided with respect to an annuity starting date on 
or after October 1, 2004, must comply with Sec.  1.417(a)(3)-1 to the 
extent that the plan provides for payment to that participant in the 
form of a single-sum distribution that does not reflect an early 
retirement subsidy available under the QJSA. If the October 1, 2004, 
effective date applies to an optional form of benefit, the plan must 
disclose the relative value of the optional form of benefit compared to 
the value of the QJSA for the participant even if the plan provides a 
disclosure of relative values that is not tailored to the participant's 
marital status. Accordingly, if a plan provides a relative value 
disclosure based on the single life annuity (the QJSA for a single 
participant) to a married participant, the plan must also include a 
comparison of the value of the QJSA to the value of the single life 
annuity.
    To illustrate the application of the modified effective date of 
Sec.  1.417(a)(3)-1, the 2005 proposed regulations contained a list of 
examples of optional forms of benefit that are subject to the minimum 
present value requirements of section 417(e)(3), and included a social 
security level income option in that list.\1\ A social security level 
income option is the payment of a participant's benefit in the form of 
an annuity with larger payments in earlier years before an assumed 
social security commencement age to provide the participant with 
approximately level retirement income when the assumed social security 
payments are taken into account. Several commentators expressed 
disagreement with the inclusion of social security level income options 
in the list of benefits that are subject to the minimum present value 
requirements of section 417(e)(3), based on their view that a social 
security level income option is not subject to those requirements. 
Commentators requested that this interpretation be withdrawn or, 
alternatively, that it be the subject of a separate rulemaking process 
to allow adequate notice and comment. In addition, commentators 
objected to the placement of these examples in the effective date 
provisions of the relative value regulations rather than in the 
regulations regarding the minimum present value requirements of section 
417(e)(3).
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    \1\ Section 1.417(e)-1(d)(6) provides that the minimum present 
value requirements of section 417(e)(3) do not apply to the amount 
of a distribution paid in the form of an annual benefit that does 
not decrease during the life of the participant, or that decreases 
during the life of the participant merely because of the death of 
the survivor annuitant or the cessation or reduction of social 
security supplements or qualified disability benefits. A social 
security supplement is defined in Sec.  1.411(a)-7(c)(4) as a 
benefit for plan participants that commences before the age and 
terminates at the age when participants are entitled to old-age 
insurance benefits, unreduced on account of age, under title II of 
the Social Security Act, and does not exceed such old-age insurance 
benefit. Under section 411(a)(9) and Sec.  1.411(a)-7(c)(4), a 
plan's early retirement benefit (and, therefore, a plan's normal 
retirement benefit) is determined without regard to a social 
security supplement.
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    These final regulations do not include a list of examples of 
optional forms of benefit that are subject to the minimum present value 
requirements of section 417(e)(3) in the provisions regarding the 
effective date of these regulations. The omission of this list reflects 
agreement with commentators that this is not the appropriate placement 
for guidance regarding the minimum present value requirements of 
section 417(e)(3). Section 1.417(e)-1(d)(6) identifies the types of 
payments that are not subject to the minimum present value requirements 
of section 417(e)(3). Under Sec.  1.417(e)-1(d)(6)(ii)(B), the minimum 
present value requirements of section 417(e)(3) do not apply to the 
amount of a distribution paid in the form of an annual benefit that 
decreases during the life of the participant merely because of the 
cessation or reduction of social security supplements. However, no such 
exemption applies to social security level income options.
    As under the 2005 proposed regulations, these final regulations 
include a special rule that enables a plan to use the delayed effective 
date rule even if there are minor differences between the value of an 
optional form and the value of the QJSA for a married participant that 
are caused by the calculation of the amount of the optional form of 
benefit based on the life annuity rather than on the QJSA. Under this 
special rule, solely for purposes of the effective date provisions, the 
actuarial present value of an optional form is treated as not being 
less than the actuarial present value of the QJSA if the following two 
conditions are met. First, using the applicable interest rate and 
applicable mortality table under Sec.  1.417(e)-1(d)(2) and (3), the 
actuarial present value of that optional form is not less than the 
actuarial present value of the QJSA for an unmarried participant. 
Second, using reasonable actuarial assumptions, the actuarial present 
value of the QJSA for an unmarried participant is not less than the 
actuarial present value of the QJSA for a married participant.
    Like the 2005 proposed regulations, these final regulations modify 
the 2003 regulations in two other respects. First, for purposes of 
disclosing the normal form of benefit as part of a disclosure made in 
the form of generally applicable information, reasonable estimates of 
the type permitted to be used to disclose participant-specific 
information may be used to determine the normal form of benefit, but 
only if the plan follows the requirements applicable to reasonable 
estimates used in disclosing participant-specific information (such as 
offering a more precise calculation upon request and revising 
previously offered information consistent with the more precise 
information). Second, a QJSA explanation does not fail to satisfy the 
requirements for QJSA explanations made in the form of disclosures of 
generally applicable information merely because the QJSA explanation 
contains an item of participant-specific information in place of the 
corresponding generally applicable information.
    In response to the 2005 proposed regulations, commentators 
requested a number of other modifications to the 2003 regulations that 
were not addressed in the 2005 proposed regulations. These regulations 
adopt a number of these suggestions.
    To address questions raised by commentators, these regulations 
clarify which optional forms of benefit that are available with 
retroactive annuity starting dates are required to be covered in a QJSA 
explanation. Under these regulations, a QJSA explanation must provide 
the required information with respect to each of the optional forms of 
benefit presently available to the participant (i.e., optional forms of 
benefit for which the QJSA explanation applies that have an annuity 
starting date after the providing of the QJSA explanation and optional 
forms of benefit with retroactive annuity starting dates that are 
available with payments commencing at that same time). In addition, 
these regulations clarify that 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 under the form of benefit during the 
participant's lifetime, and the amounts and timing of payments after 
the death of the participant.
    Some commentators expressed concerns over the fact that the 
regulations permit any optional form of benefit that is at least 95% as 
valuable as the QJSA for a married participant to

[[Page 14801]]

be described as approximately equal in value to the QJSA, even if that 
optional form of benefit is substantially more valuable than the QJSA. 
These commentators expressed concerns regarding compliance with the 
standards of professional conduct for actuaries and recommended that 
the regulations prohibit employers from providing information to 
participants that is misleading. Commentators also objected to the 
difference between this rule and the rule for disclosures of relative 
values in comparison to the single life annuity, under which optional 
forms of benefit can be disclosed as approximately equal in value to 
the single life annuity only if all optional forms are within a range 
of 95% to 102.5% of the value of the single life annuity.
    To address these concerns, these regulations provide that the 
relative value of all optional forms of benefit that have an actuarial 
present value that is at least 95% of the actuarial present value of 
the QJSA and no greater than 105% of the actuarial present value of the 
QJSA is permitted to be described by stating that these optional forms 
of benefit are approximately equal in value to the QJSA, or that all of 
these forms of benefit and the QJSA are approximately equal in value. 
Thus, optional forms of benefit that have greater differences in 
present value may not be described as having approximately the same 
value. Moreover, this rule applies regardless of whether the comparison 
is made to the QJSA for married participants or the QJSA for unmarried 
participants. To give employers sufficient time to perform the 
additional calculations that may be required to implement this rule, a 
special effective date applies so that this change to the regulations 
need not be applied for disclosures made before 2007.
    Some commentators requested clarification regarding the reasonable 
actuarial assumptions that can be used to compare the value of an 
optional form of benefit to the value of the QJSA if that optional form 
of benefit is not subject to the minimum present value requirements of 
section 417(e)(3). In response, these regulations clarify that, for 
this purpose, the reasonableness of interest and mortality assumptions 
is determined without regard to the circumstances of the individual 
participant. In addition, the applicable mortality table and the 
applicable interest rate as defined in Sec.  1.417(e)-1(d)(2) and (3) 
are considered reasonable actuarial assumptions for this purpose and 
thus are permitted (but not required) to be used.
    Commentators requested that simplified disclosures of financial 
effect and relative value be permitted under certain circumstances to 
enable employers to make that information more useful for participants 
in certain cases in which the plan would otherwise be required to 
provide a confusing array of information to a participant. To address 
these concerns, these regulations permit simplified presentations of 
financial effect and relative value for a plan that offers a 
significant number of substantially similar optional forms of benefit, 
and also permit simplified presentations of relative value and 
financial effect for a plan that permits the participant to make 
separate benefit elections with respect to parts of a benefit.
    If a plan offers a significant number of substantially similar 
optional forms of benefit and disclosing the financial effect and 
relative value of each such optional form of benefit would provide a 
level of detail that could be overwhelming rather than helpful to 
participants, then the financial effect and relative value of those 
optional forms of benefit can be disclosed by explaining the relative 
value and financial effect of a representative range of examples of 
those optional forms of benefit. For purposes of this rule, optional 
forms of benefit are substantially similar if those optional forms of 
benefit are identical except for a particular feature or features (with 
associated adjustment factors) and the feature or features vary 
linearly. For example, if a plan offers joint and survivor annuity 
options with survivor payments available in all whole number 
percentages between 50% and 100%, those joint and survivor annuity 
options are substantially similar. Similarly, if a participant is 
entitled under the plan to receive a particular form of benefit with an 
annuity starting date that is the first day of any month beginning 
three years before commencement of a distribution and ending on the 
date of commencement of the distribution, those forms of benefit are 
substantially similar.
    A range of examples with respect to substantially similar optional 
forms of benefit as permitted under this rule is representative only if 
it includes examples illustrating the relative value and financial 
effect of the optional forms of benefit that reflect each varying 
feature at both extremes of its linear range, plus at least one example 
illustrating the relative value and financial effect of the optional 
forms of benefit that reflects each varying feature at an intermediate 
point. However, if one intermediate example is insufficient to 
illustrate a pattern of variation in relative value with respect to a 
varying feature, examples that are sufficient to illustrate the pattern 
must be provided. Thus, for example, if a plan offers joint and 
survivor annuity options with survivor payments available in all whole 
number percentages between 50% and 100%, and if all such optional forms 
of benefit would be permitted to be described as approximately equal in 
value, the plan could satisfy the requirement to disclose the relative 
value and financial effect of a representative range of examples of 
those optional forms of benefit by disclosing the relative value and 
financial effect with respect to the joint and 50% survivor annuity, 
the joint and 75% survivor annuity, and joint and 100% survivor 
annuity.
    If the plan permits a participant to make separate benefit 
elections with respect to two or more portions of the participant's 
benefit, the description of the financial effect and relative values of 
optional forms of benefit can be made separately for each such portion 
of the benefit, rather than for each optional form of benefit (i.e., 
each combination of possible elections).
    As under the 2005 proposed regulations, these regulations include a 
change to Sec.  1.401(a)-20, Q&A-16, to clarify the interaction of the 
rule prohibiting a plan from providing an option to a married 
individual that is worth more than the QJSA with the requirement that 
certain optional forms of benefit be calculated using specified 
actuarial assumptions. Under that clarification, a plan would not fail 
to satisfy the requirements of Sec.  1.401(a)-20, Q&A-16, merely 
because the amount payable under an optional form of benefit that is 
subject to the minimum present value requirement of section 417(e)(3) 
is calculated using actuarial assumptions set forth in section 
417(e)(3) (i.e., the applicable interest rate and, for periods that are 
required, the applicable mortality table).

Dates of Applicability

    As discussed above under the heading Explanation of Provisions, 
these regulations retain the effective date for Sec.  1.417(a)(3)-1 
under the 2003 regulations (i.e., QJSA explanations with respect to 
annuity starting dates on or after October 1, 2004) for explanations 
with respect to any optional form of benefit that is subject to the 
requirements of section 417(e)(3) if the actuarial present value of 
that optional form is less than the actuarial present value (as 
determined under section 417(e)(3)) of the QJSA. See Sec.  1.417(a)(3)-
1(f)(2). Thus, for example,

[[Page 14802]]

a QJSA explanation provided with respect to an annuity starting date on 
or after October 1, 2004, must comply with Sec.  1.417(a)(3)-1 to the 
extent that the plan provides for payment to that participant in the 
form of a single-sum distribution that does not reflect an early 
retirement subsidy available under the QJSA.
    As under the 2005 proposed regulations, these final regulations 
defer the effective date of the 2003 regulations with respect to all 
other QJSA explanations. Under these final regulations, the 2003 
regulations (as amended by these regulations) generally apply to a QJSA 
explanation with respect to any distribution with an annuity starting 
date that is on or after February 1, 2006. However, the change to Sec.  
1.417(a)(3)-1(c)(2)(iii)(C) (relating to disclosures of optional forms 
of benefit that are approximately equal in value to the QJSA) is not 
required to be applied to QJSA explanations provided before January 1, 
2007.
    A reasonable, good faith effort to comply with these regulations 
will be deemed to satisfy the requirements of these regulations for 
QJSA explanations provided before January 1, 2007 (except with respect 
to any portion of a QJSA explanation that is subject to the earlier 
effective date rule of Sec.  1.417(a)(3)-1(f)(2)). For this purpose, a 
reasonable, good faith effort to comply with these regulations includes 
substantial compliance with the 2003 regulations.
    These regulations do not change the effective date of the 2003 
regulations with respect to QPSA explanations. Thus, the 2003 
regulations continue to apply to any QPSA explanation provided on or 
after July 1, 2004.
    The change to Sec.  1.401(a)-20, Q&A-16 (clarifying that a plan 
does not fail to satisfy the requirements of Q&A-16 as a result of 
complying with the minimum present value requirements of section 
417(e)(3)), applies as if it had been included in the 1988 regulations 
(TD 8219, 53 FR 31837).

Special Analyses

    It has been determined that this Treasury Decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It is hereby 
certified that the collection of information in these regulations will 
not have a significant economic impact on a substantial number of small 
entities. This certification is based upon the fact that qualified 
retirement plans of small businesses typically commence distribution of 
benefits to few, if any, plan participants in any given year and, 
similarly, only offer elections to waive a QPSA to few, if any, 
participants in any given year. Thus, the collection of information in 
these regulations will only have a minimal economic impact on most 
small entities. Therefore, an analysis under the Regulatory Flexibility 
Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) 
of the Code, the notice of proposed rulemaking preceding these 
regulations was submitted to the Small Business Administration for 
comment on its impact on small business.

Drafting Information

    The principal authors of these regulations are Bruce Perlin and 
Linda S.F. Marshall of the Office of the Division Counsel/Associate 
Chief Counsel (Tax Exempt and Government Entities). However, other 
personnel from the IRS and Treasury participated in their development.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Amendments to the Regulations

0
Accordingly, 26 CFR part 1 is amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read, in 
part, as follows:

    Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.401(a)-20 is amended by:
0
1. Adding a sentence to the end of Q&A-16.
0
2. Adding a sentence to the end of Q&A-36.
    The additions read as follows:


Sec.  1.401(a)-20  Requirements of qualified joint and survivor annuity 
and qualified preretirement survivor annuity.

* * * * *
    A-16 * * * A plan does not fail to satisfy the requirements of this 
Q&A-16 merely because the amount payable under an optional form of 
benefit that is subject to the minimum present value requirement of 
section 417(e)(3) is calculated using the applicable interest rate 
(and, for periods when required, the applicable mortality table) under 
section 417(e)(3).
* * * * *
    A-36 * * * However, the rules of Sec.  1.401(a)-20, Q&A-36, as it 
appeared in 26 CFR part 1 revised April 1, 2003, apply to the 
explanation of a QJSA under section 417(a)(3) for an annuity starting 
date prior to February 1, 2006.
* * * * *

0
Par. 3. Section 1.417(a)(3)-1 is amended by:
0
1. Revising the parenthetical in paragraph (c)(1).
0
2. Revising the parenthetical in paragraph (c)(1)(iii).
0
3. Removing the language ``paragraph (c)(3)(iii) of'' from paragraph 
(c)(2)(ii)(A).
0
4. Revising paragraph (c)(2)(iii)(C).
0
6. Adding two sentences to the end of paragraph (c)(2)(iv)(B).
0
7. Adding paragraph (c)(5).
0
8. Adding a sentence to the end of paragraph (d)(2)(ii).
0
9. Adding paragraph (d)(5).
0
10. Revising paragraph (ii) of Example (4) in paragraph (e) by removing 
the language ``paragraph (c)(2)(ii) of this section'' and adding 
``paragraph (c)(2)(iii) of this section'' in its place.
0
11. Revising paragraph (f).
    The additions and revisions read as follows:


Sec.  1.417(a)(3)-1  Required explanation of qualified joint and 
survivor annuity and qualified preretirement survivor annuity.

* * * * *
    (c) Participant-specific information required to be provided--(1) 
In general. * * * (i.e., optional forms of benefit for which the QJSA 
explanation applies that have an annuity starting date after the 
providing of the QJSA explanation and optional forms of benefit with 
retroactive annuity starting dates that are available with payments 
commencing at that same time) * * *
* * * * *
    (iii) * * * (i.e., the amounts and timing of payments to the 
participant under the form of benefit during the participant's 
lifetime, and the amounts and timing of payments after the death of the 
participant) * * *
    (2) * * *
    (iii) * * *
    (C) Special rule for optional forms of benefit that are close in 
value to the QJSA. The relative value of all optional forms of benefit 
that have an actuarial present value that is at least 95% of the 
actuarial present value of the QJSA and no greater than 105% of the 
actuarial present value of the QJSA is permitted to be described by 
stating that those optional forms of benefit are approximately equal in 
value to the QJSA, or that all of those forms of benefit and the QJSA 
are approximately equal in value.
* * * * *
    (iv) * * *
    (B) * * * For this purpose, the reasonableness of interest and 
mortality assumptions is determined without regard to the circumstances 
of the individual participant. In addition, the

[[Page 14803]]

applicable mortality table and the applicable interest rate as defined 
in Sec.  1.417(e)-1(d)(2) and (3) are considered reasonable actuarial 
assumptions for this purpose and thus are permitted (but not required) 
to be used.
* * * * *
    (5) Simplified presentations of financial effect and relative value 
to enhance clarity for participants--(i) In general. This paragraph 
(c)(5) permits certain simplified presentations of financial effect and 
relative value of optional forms of benefit to permit more useful 
presentations of information to be provided to participants in certain 
cases in which a plan offers a range of optional forms of benefit. 
Paragraph (c)(5)(ii) of this section permits simplified presentations 
of financial effect and relative value for a plan that offers a 
significant number of substantially similar optional forms of benefit. 
Paragraph (c)(5)(iii) of this section permits simplified presentations 
of financial effect and relative value for a plan that permits the 
participant to make separate benefit elections with respect to parts of 
a benefit.
    (ii) Disclosure for plans offering a significant number of 
substantially similar optional forms of benefit--(A) In general. If a 
plan offers a significant number of substantially similar optional 
forms of benefit within the meaning of paragraph (c)(5)(ii)(B) of this 
section and disclosing the financial effect and relative value of each 
such optional form of benefit would provide a level of detail that 
could be overwhelming rather than helpful to participants, then the 
financial effect and relative value of those optional forms of benefit 
can be disclosed by disclosing the relative value and financial effect 
of a representative range of examples of those optional forms of 
benefit as described in paragraph (c)(5)(ii)(C) of this section if the 
requirements of paragraph (c)(5)(ii)(D) of this section (relating to 
additional information available upon request) are satisfied.
    (B) Substantially similar optional forms of benefit. For purposes 
of this paragraph (c)(5)(ii), optional forms of benefit are 
substantially similar if those optional forms of benefit are identical 
except for a particular feature or features (with associated adjustment 
factors) and the feature or features vary linearly. For example, if a 
plan offers joint and survivor annuity options with survivor payments 
available in every whole number percentage between 50% and 100%, those 
joint and survivor annuity options are substantially similar optional 
forms of benefit. Similarly, a participant is entitled under the plan 
to receive a particular form of benefit with an annuity starting date 
that is the first day of any month beginning three years before 
commencement of a distribution and ending on the date of commencement 
of the distribution, those forms of benefit are substantially similar 
optional forms of benefit.
    (C) Representative range of examples. A range of examples with 
respect to substantially similar optional forms of benefit as permitted 
under this paragraph (c)(5) is representative only if it includes 
examples illustrating the financial effect and relative value of the 
optional forms of benefit that reflect each varying feature at both 
extremes of its linear range, plus at least one example illustrating 
the financial effect and relative value of the optional forms of 
benefit that reflects each varying feature at an intermediate point. 
However, if one intermediate example is insufficient to illustrate the 
pattern of variation in relative value with respect to a varying 
feature, examples sufficient to illustrate such pattern must be 
provided. Thus, for example, if a plan offers joint and survivor 
annuity options with survivor payments available in every whole number 
percentage between 50% and 100%, and if all such optional forms of 
benefit would be permitted to be disclosed as approximately equal in 
value as described in paragraph (c)(5)(ii)(B) of this section, the plan 
could satisfy the requirement to disclose the financial effect and 
relative value of a representative range of examples of those optional 
forms of benefit by disclosing the financial effect and relative value 
with respect to the joint and 50% survivor annuity, the joint and 75% 
survivor annuity, and the joint and 100% survivor annuity.
    (D) Requirement to provide information with respect to other 
optional forms of benefit upon request. If a QJSA explanation discloses 
the financial effect and relative value of substantially similar 
optional forms of benefit by disclosing the financial effect and 
relative value of a representative range of examples in accordance with 
this paragraph (c)(5)(ii), the QJSA explanation must explain that the 
plan will, upon the request of the participant, disclose the financial 
effect and relative value of any particular optional form of benefit 
from among the substantially similar optional forms of benefit and the 
plan must provide the participant with the financial effect and 
relative value of any such optional form of benefit if the participant 
so requests.
    (iii) Separate presentations permitted for elections that apply to 
parts of a benefit. If the plan permits the participant to make 
separate benefit elections with respect to two or more portions of the 
participant's benefit, the description of the financial effect and 
relative values of optional forms of benefit can be made separately for 
each such portion of the benefit, rather than for each optional form of 
benefit (i.e., each combination of possible elections).
    (d) * * *
    (2) * * *
    (ii) Actual benefit must be disclosed. * * * Reasonable estimates 
of the type described in paragraph (c)(3)(i) of this section may be 
used to determine the amount payable to the participant under the 
normal form of benefit for purposes of this paragraph (d)(2)(ii) if the 
requirements of paragraphs (c)(3)(ii) and (iii) of this section are 
satisfied with respect to those estimates.
* * * * *
    (5) Use of participant-specific information in generalized notice. 
A QJSA explanation does not fail to satisfy the requirements of this 
paragraph (d) merely because it contains an item of participant-
specific information in place of the corresponding generally applicable 
information.
* * * * *
    (f) Effective date--(1) General effective date for QJSA 
explanations--(i) In general. Except as otherwise provided in this 
paragraph (f), this section applies to a QJSA explanation with respect 
to any distribution with an annuity starting date that is on or after 
February 1, 2006.
    (ii) Reasonable, good faith transition rule. Except with respect to 
any portion of a QJSA explanation that is subject to the earlier 
effective date rule of paragraph (f)(2) of this section, a reasonable, 
good faith effort to comply with these regulations will be deemed to 
satisfy the requirements of these regulations for QJSA explanations 
provided before January 1, 2007, with respect to distributions with 
annuity starting dates that are on or after February 1, 2006. For this 
purpose, a reasonable, good faith effort to comply with these 
regulations includes substantial compliance with Sec.  1.417(a)(3)-1 as 
it appeared in 26 CFR part 1 revised April 1, 2004.
    (2) Special effective date for certain QJSA explanations--(i) 
Application to QJSA explanations with respect to certain optional forms 
that are less valuable than the QJSA. This section also applies to a 
QJSA explanation with respect to any distribution with an annuity 
starting date that is on or after October 1, 2004, and before February 
1, 2006, if the actuarial present value of any optional form of benefit 
that is

[[Page 14804]]

subject to the requirements of section 417(e)(3) is less than the 
actuarial present value (as determined under Sec.  1.417(e)-1(d)) of 
the QJSA. For purposes of this paragraph (f)(2)(i), the actuarial 
present value of an optional form is treated as not less than the 
actuarial present value of the QJSA if--
    (A) Using the applicable interest rate and applicable mortality 
table under Sec.  1.417(e)-1(d)(2) and (3), the actuarial present value 
of that optional form is not less than the actuarial present value of 
the QJSA for an unmarried participant; and
    (B) Using reasonable actuarial assumptions, the actuarial present 
value of the QJSA for an unmarried participant is not less than the 
actuarial present value of the QJSA for a married participant.
    (ii) Requirement to disclose differences in value for certain 
optional forms. A QJSA explanation with respect to any distribution 
with an annuity starting date that is on or after October 1, 2004, and 
before February 1, 2006, is only required to be provided under this 
section with respect to--
    (A) An optional form of benefit that is subject to the requirements 
of section 417(e)(3) and that has an actuarial present value that is 
less than the actuarial present value of the QJSA (as described in 
paragraph (f)(2)(i) of this section); and
    (B) The QJSA (determined without application of paragraph 
(c)(2)(ii) of this section).
    (iii) Application to QJSA explanations with respect to optional 
forms that are approximately equal in value to the QJSA. Paragraph 
(c)(2)(iii)(C) of this section, relating to disclosures of optional 
forms of benefit that are permitted to be described as approximately 
equal in value to the QJSA, is not applicable to a QJSA explanation 
provided before January 1, 2007. However, Sec.  1.417(a)(3)-
1(c)(2)(iii)(C), as it appeared in 26 CFR part 1 revised April 1, 2004, 
applies to a QJSA explanation with respect to any distribution with an 
annuity starting date that is on or after October 1, 2004, and that is 
provided before January 1, 2007.
    (3) Annuity starting date. For purposes of paragraphs (f)(1) and 
(2) of this section, in the case of a retroactive annuity starting date 
under section 417(a)(7), as described in Sec.  1.417(e)-1(b)(3)(vi), 
the date of commencement of the actual payments based on the 
retroactive annuity starting date is substituted for the annuity 
starting date.
    (4) Effective date for QPSA explanations. This section applies to 
any QPSA explanation provided on or after July 1, 2004.

Mark E. Matthews,
Deputy Commissioner for Services and Enforcement.
    Approved: March 15, 2006.
Eric Solomon,
Acting Deputy Assistant Secretary of the Treasury.
[FR Doc. 06-2844 Filed 3-23-06; 8:45 am]
BILLING CODE 4830-01-P