Update to Minimum Present Value Requirements for Defined Benefit Plan Distributions, 3552-3562 [2024-00978]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 89, Number 13 (Friday, January 19, 2024)]
[Rules and Regulations]
[Pages 3552-3562]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00978]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

[TD 9987]
RIN 1545-BK95


Update to Minimum Present Value Requirements for Defined Benefit 
Plan Distributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

-----------------------------------------------------------------------

SUMMARY: This document sets forth final regulations providing guidance 
relating to the minimum present value requirements applicable to 
certain defined benefit pension plans. These regulations provide 
guidance on changes made by the Pension Protection Act of 2006 to the 
prescribed interest rate and mortality table and other guidance, 
including rules regarding the treatment of preretirement mortality 
discounts and Social Security level income options. These regulations 
affect participants, beneficiaries, sponsors, and administrators of 
defined benefit pension plans.

DATES: 
    Effective date: These regulations are effective on January 19, 
2024.
    Applicability date: These regulations generally apply to 
distributions with annuity starting dates that occur on or after 
October 1, 2024.

FOR FURTHER INFORMATION CONTACT: Diane S. Bloom or Linda S.F. Marshall 
at (202) 317-6700 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    Section 401(a)(11) of the Internal Revenue Code (Code) provides 
rules that a defined benefit plan must satisfy with respect to a vested 
participant in order to be a qualified plan under section 401(a). Under 
those rules, except as provided under section 417: (1) if the 
participant survives to the annuity starting date, the accrued benefit 
payable to the participant must be provided in the form of a qualified 
joint and survivor annuity (QJSA); and (2) if the participant dies 
before the annuity starting date and has a surviving spouse, the plan 
must provide a qualified preretirement survivor annuity (QPSA) to the 
surviving spouse.
    Under section 417(e)(1), a plan may provide that the present value 
of a QJSA or a QPSA will be distributed immediately if that present 
value does not exceed the amount that may be distributed without the 
participant's consent under section 411(a)(11).\1\ Under section 
417(e)(2), if the present value of the QJSA or the QPSA exceeds that 
amount, then a plan may immediately distribute the present value of the 
QJSA or the QPSA only if the participant and the spouse of the 
participant (or, if the participant has died, the surviving spouse) 
consent in writing to the distribution.
---------------------------------------------------------------------------

    \1\ Section 411(a)(11)(A) generally provides that if the present 
value of a participant's nonforfeitable accrued benefit exceeds 
$7,000 ($5,000 for distributions made on or before December 31, 
2023), then the benefit may not be distributed immediately without 
the participant's consent.
---------------------------------------------------------------------------

    Section 417(e)(3)(A) provides that the present value of the QJSA or 
QPSA must not be less than the present value calculated by using the 
applicable mortality table and the applicable interest rate.\2\
---------------------------------------------------------------------------

    \2\ Under section 411(a)(11)(B), the present value that is used 
to apply the rules of section 411(a)(11) is calculated using the 
rules of section 417(e)(3).
---------------------------------------------------------------------------

    Section 417(e)(3)(B), as amended by section 302 of the Pension 
Protection Act of 2006, Public Law 109-280, 120 Stat. 780 (PPA '06), 
provides that the term ``applicable mortality table'' means a mortality 
table, modified as appropriate by the Secretary, based on the mortality 
table specified for the plan year under section 430(h)(3)(A) of the 
Code (without regard to section 430(h)(3)(C) or (D)).
    Section 417(e)(3)(C), as amended by section 302 of PPA '06, 
provides that the term ``applicable interest rate'' means the adjusted 
first, second, and third segment rates applied under rules similar to 
the rules of section 430(h)(2)(C) of the Code for the month before the 
date of the distribution or such other time as the Secretary may 
prescribe by regulations. However, for purposes of section 417(e)(3), 
these rates are determined without regard to the segment rate 
stabilization rules of section 430(h)(2)(C)(iv). In addition, under 
section 417(e)(3)(D), these rates are determined using the average 
yields for a month, rather than the 24-month average used under section 
430(h)(2)(D).
    Section 411(a)(13), as added by section 701(b) of PPA '06, provides 
that an ``applicable defined benefit plan,'' as defined by section 
411(a)(13)(C) of the Code, is not treated as failing to meet the 
requirements of section 417(e) with respect to accrued benefits derived 
from employer contributions solely because the present value of a 
participant's accrued benefit (or any portion thereof) may be, under 
the terms of the plan, equal to the amount expressed as the 
hypothetical account balance or as an accumulated percentage of such 
participant's final average compensation.
    The Department of the Treasury (Treasury Department) and the IRS 
issued final regulations under section 417 relating to the QJSA and 
QPSA requirements in 1988 (53 FR 31854, August 22, 1988), and amended 
those regulations in 1998 (63 FR 16898, April 3, 1998), to reflect 
changes to section 417(e)(3) enacted by the Retirement Protection Act 
of 1994, Subtitle F of Title VII of the Uruguay Round Agreements Act, 
Public Law 103-465, 108 Stat. 4809 (RPA '94). Section 1.417(e)-1 was 
further amended in 2016 (81 FR 62359, September 9, 2016) to permit 
defined benefit plans to bifurcate a benefit that is paid partly in the 
form of an annuity and partly in a more accelerated form and to apply 
the requirements of section 417(e)(3) only to the accelerated portion 
of the distribution. However, Sec.  1.417(e)-1 was not updated at that 
time to reflect changes made by PPA '06.

[[Page 3553]]

    Under Sec.  1.417(e)-1(d)(1), a defined benefit plan generally must 
provide that the present value of any accrued benefit and the amount 
(subject to sections 411(c)(3) and 415) of any distribution, including 
a single sum, may not be less than the amount calculated using the 
applicable interest rate and the applicable mortality table. In 
addition, under Sec.  1.417(e)-1(d)(1), the present value of any 
optional form of benefit may not be less than the present value of the 
normal retirement benefit determined in accordance with the preceding 
sentence.
    Section 1.417(e)-1(d)(6) provides an exception from the minimum 
present value requirements of section 417(e) and Sec.  1.417(e)-1(d) 
for certain distributions. This exception applies to the amount of a 
distribution paid in the form of an annual benefit that either does not 
decrease during the life of the participant (or, in the case of a QPSA, 
the life of the participant's spouse), or that decreases during the 
life of the participant merely because of (1) the death of the survivor 
annuitant (but only if the reduction is to a level not below 50 percent 
of the annual benefit payable before the death of the survivor 
annuitant), or (2) the cessation or reduction of Social Security 
supplements or qualified disability benefits.
    Section 1.401(a)-20 provides rules regarding the survivor annuity 
requirements of sections 401(a)(11) and 417. Section 1.401(a)-20, Q&A-
16, provides that, in the case of 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. Section 1.401(a)-20, Q&A-16 does not 
specify a particular actuarial basis for applying this requirement; 
therefore, this requirement may be satisfied using any set of 
reasonable actuarial assumptions. In addition, Sec.  1.401(a)-20, Q&A-
16 provides that a plan does not fail to satisfy the at-least-as-
valuable requirement 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).
    Under section 401(a)(7), a plan is not a qualified plan unless the 
plan satisfies the requirements of section 411. Section 411(d)(6)(A) 
provides that a plan is treated as not satisfying the requirements of 
section 411 if it is amended to reduce accrued benefits (subject to 
certain exceptions). For this purpose, section 411(d)(6)(B) provides 
that a plan amendment is treated as impermissibly reducing accrued 
benefits if it has the effect of eliminating or reducing an early 
retirement benefit or a retirement-type subsidy, or eliminating an 
optional form of benefit, with respect to benefits attributable to 
service before the amendment. However, the last sentence of section 
411(d)(6)(B) provides that the Secretary may by regulations provide 
that section 411(d)(6)(B) does not apply to a plan amendment that 
eliminates an optional form of benefit (other than a plan amendment 
that has the effect of eliminating or reducing an early retirement 
benefit or a retirement-type subsidy).
    Notice 2007-81, 2007-2 CB 899, provides guidance on the applicable 
interest rate. Rev. Rul. 2007-67, 2007-2 CB 1047, provides guidance on 
the applicable mortality table \3\ and the timing rules that apply to 
the determination of the applicable interest rate under section 
417(e)(3)(C) and the applicable mortality table under section 
417(e)(3)(B).
---------------------------------------------------------------------------

    \3\ Notice 2008-85, 2008-2 CB 905, Notice 2013-49, 2013-32 IRB 
127, Notice 2015-53, 2015-33 IRB 190, Notice 2016-50, 2016-38 IRB 
371, Notice 2017-60, 2017-43 IRB 365, Notice 2018-2, 2018-2 IRB 281, 
Notice 2019-26, 2019-15 IRB 943, Notice 2019-67, 2019-52 IRB 1510, 
Notice 2020-85, 2020-51 IRB 1645, Notice 2022-22, 2022-20 IRB 1057, 
and Notice 2023-73, 2023-45 IRB 1232, set forth the section 
417(e)(3) applicable mortality tables for 2009 through 2024.
---------------------------------------------------------------------------

    Sections 203(e), 204(g), and 205(g) of the Employee Retirement 
Income Security Act of 1974, Public Law 93-406, 88 Stat. 829, as 
amended (ERISA), provide rules that are parallel to Code sections 
411(a)(11), 411(d)(6), and 417(e), respectively. Under section 101 of 
Reorganization Plan No. 4 of 1978, 5 U.S.C. App., as amended, the 
Secretary of the Treasury has interpretive jurisdiction over the 
subject matter addressed in these regulations for purposes of ERISA, as 
well as the Code. Thus, these regulations apply for purposes of the 
Code and the corresponding provisions of ERISA.
    In West v. AK Steel Corporation Retirement Accumulation Pension 
Plan, 484 F.3d 395, 411 (6th Cir. 2007), cert. denied 555 U.S. 1097 
(2009), the court held that a preretirement mortality discount could 
not be used in the computation of the present value of a participant's 
single-sum distribution under a cash balance plan if the death benefit 
under the plan was equal in value to the participant's accrued benefit 
under the plan. The court found that, if a participant's beneficiary is 
entitled to the participant's entire accrued benefit upon the 
participant's death before attainment of normal retirement age, the use 
of a mortality discount for the period before normal retirement age 
would result in a partial forfeiture of benefits in violation of the 
ERISA vesting rules that correspond to the rules of section 411(a). Id. 
See also Berger v. Xerox Retirement Income Guaranty Plan, 231 F.Supp.2d 
804, 814 (S.D. Ill. 2002), modified and affirmed, 338 F.3d 755, 764 
(7th Cir. 2003) (holding that use of a preretirement mortality discount 
was not warranted in determining participants' normal retirement 
benefits payable under plan); Crosby v. Bowater, Inc. Ret. Plan, 212 
FRD. 350, 362 (W.D. Mich. 2002), rev'd on other grounds, 382 F.3d 587 
(6th Cir. 2004), cert. denied 544 U.S. 976 (2005) (holding that accrued 
benefits include not only retirement benefits themselves, but also 
death benefits which are directly related to the value of the 
retirement benefits); and McCutcheon v. Colgate-Palmolive Co., 62 F.4th 
674 (2nd Cir. 2023) (holding that a preretirement mortality factor may 
not be applied to calculate the value of a participant's accrued 
benefit previously distributed from a cash-balance plan for purposes of 
determining a residual annuity). In Stewart v. AT&T Inc., 354 Fed. 
App'x. 111, 118 (5th Cir. 2009), however, the court held that a 
preretirement mortality discount was appropriately applied to determine 
a single-sum distribution under a traditional defined benefit plan. The 
court distinguished AK Steel and Berger on the basis that the plans at 
issue in those cases did not provide for a forfeiture of the accrued 
benefit on the death of the participant before retirement, whereas the 
plan at issue in Stewart provided for such a forfeiture.
    Proposed regulations that would update the regulations under 
section 417(e) and make certain clarifying changes were published in 
the Federal Register on November 25, 2016 (81 FR 85190). Comments were 
received on the proposed regulations, and a public hearing was held on 
March 7, 2017. After consideration of the comments, the proposed 
regulations are adopted by this Treasury decision with certain changes 
described in the section of this preamble entitled ``Summary of 
Comments and Explanation of Revisions.''

Summary of Comments and Explanation of Revisions

1. Overview

    These regulations amend the existing regulations under section 
417(e) regarding the minimum present value requirements of section 
417(e)(3) in several respects. Specifically, these regulations update 
Sec.  1.417(e)-1 to reflect

[[Page 3554]]

changes to sections 411(a) and 417(e) made by PPA '06 and to eliminate 
certain obsolete provisions. These regulations also set forth other 
updates and clarifying changes.

2. Updates To Reflect Statutory Changes

    These regulations update the existing regulations to reflect the 
statutory changes made by PPA '06, including the new interest rates and 
mortality tables set forth in section 417(e)(3) and the exception from 
the valuation rules for certain applicable defined benefit plans set 
forth in section 411(a)(13). These regulations clarify that, for 
purposes of section 417(e)(3), the interest rates that are published by 
the Commissioner are to be used without further adjustment. In 
addition, these regulations eliminate obsolete provisions relating to 
the transition from pre-1995 law to the interest rates and mortality 
assumptions under section 417(e)(3) as modified by RPA '94.

3. Treatment of Preretirement Mortality

    These regulations adopt the rules set forth in the proposed 
regulations relating to the treatment of preretirement mortality 
discounts in determining the minimum present value of accrued benefits. 
Those rules address the issue raised by AK Steel and Berger of whether 
a plan that provides a death benefit equal in value to the accrued 
benefit may apply a preretirement mortality discount for the 
probability of death when determining the amount of a single-sum 
distribution.
    Section 411(a) sets forth rules limiting the forfeiture of accrued 
benefits. Under section 411(a)(1), an employee's rights in the accrued 
benefit derived from employee contributions must be nonforfeitable. In 
addition, an employee's rights in the accrued benefit derived from 
employer contributions must become nonforfeitable at least as quickly 
as under one of the vesting schedules specified in section 411(a)(2). 
Section 411(a)(3)(A) provides that a right to an accrued benefit 
derived from employer contributions is not treated as forfeitable 
solely because the plan provides that it is not payable if the 
participant dies.
    Section 411(a)(7)(A)(i) defines a participant's accrued benefit 
under a defined benefit plan as the employee's accrued benefit 
determined under the plan and, except as provided in section 411(c)(3), 
expressed in the form of an annual benefit commencing at normal 
retirement age. Section 1.411(a)-7(a)(1) provides that the term 
``accrued benefit'' refers only to pension or retirement benefits. 
Consequently, accrued benefits do not include ancillary benefits not 
directly related to retirement benefits, such as incidental death 
benefits.
    A death benefit under a defined benefit plan that is payable if the 
participant dies before attaining normal retirement age and before 
benefits commence is not part of the participant's accrued benefit 
within the meaning of section 411(a)(7) and, accordingly, the 
nonforfeiture rules of section 411(a) do not apply to this type of 
death benefit. This is the case even if the amount of the death benefit 
is the same as the amount the participant would have received if, 
instead of dying, the participant had separated from service and 
elected to receive an immediate distribution. Moreover, such an 
ancillary death benefit can be eliminated by plan amendment without 
violating the anti-cutback rule of section 411(d)(6).
    Consistent with this analysis, section 417(e) does not require 
ancillary death benefits (that is, a death benefit that is not part of 
the accrued benefit) to be taken into account in the calculation of the 
minimum present value of the accrued benefit. Accordingly, under the 
proposed regulations, the probability of death under the applicable 
mortality table generally is taken into account for purposes of 
determining the minimum amount of a lump sum distribution under the 
plan that is equal to the present value of the accrued benefit (or the 
optional form of benefit, if applicable) under section 417(e)(3), and 
that minimum amount is not required to include the present value of the 
death benefits provided under the plan (other than a death benefit that 
is part of the accrued benefit or part of the optional form of benefit 
for which present value is determined). Commenters generally supported 
this rule in the proposed regulations, and it is included in the final 
regulations at Sec.  1.417(e)-1(d)(2)(ii)(A).\4\
---------------------------------------------------------------------------

    \4\ Neither the proposed regulations nor these regulations 
address the applicability of a preretirement mortality adjustment in 
determining the actuarial equivalent of a past distribution for 
purposes of offsetting that actuarial equivalent against future 
distributions. But see McCutcheon, which concerned the application 
of a preretirement mortality adjustment to calculate the actuarial 
equivalent of previously distributed benefits for purposes of 
determining whether the plan's calculation of a residual annuity 
resulted in the forfeiture of a participant's accrued benefit.
---------------------------------------------------------------------------

    Some commenters raised an issue regarding the effect of the rule on 
plan designs under which the probability of death is not taken into 
account in determining the amount of a single-sum distribution because 
the plan provides a death benefit equal in value to the present value 
of the accrued benefit.\5\ These commenters expressed concern that this 
type of plan design might violate the requirement of Sec.  1.401(a)-20, 
Q&A-16, that, 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, and would not be eligible for the exception that 
applies to an optional form of benefit that is calculated in accordance 
with the requirements of section 417(e)(3) (because disregarding the 
probability of death before normal retirement age in calculating the 
amount of a distribution in an optional form of benefit to which 
section 417(e)(3) applies would increase the present value of that 
distribution above the minimum present value required under section 
417(e)(3)).
---------------------------------------------------------------------------

    \5\ These commenters noted that disregarding the probability of 
death in these circumstances generates the same present value as is 
generated by taking into account the probability of death and 
including the value of the death benefit in the single-sum 
distribution.
---------------------------------------------------------------------------

    The Treasury Department and the IRS did not intend for the rule 
requiring the probability of death to be taken into account for 
purposes of determining minimum present value to prohibit this plan 
design. Accordingly, these regulations expand eligibility for the 
exception to the rule under Sec.  1.401(a)-20, Q&A-16, for certain 
optional forms of benefit. The existing exception under Sec.  1.401(a)-
20, Q&A-16, applies to an optional form of benefit that is subject to 
the requirements of section 417(e)(3) and is calculated using the 
applicable interest rate and the applicable mortality table. Under the 
expanded eligibility for that exception provided for in Sec.  1.417(e)-
1(d)(2)(ii)(C)(1), the amount payable under an optional form of benefit 
is treated as calculated using the applicable interest rate and 
applicable mortality table under section 417(e)(3) (and therefore is 
eligible for this exception) even if the amount payable is calculated 
taking into account both the probability of death before retirement and 
any death benefit under the plan.
    These regulations also adopt the rule under the proposed 
regulations under which, for purposes of determining the present value 
under section 417(e)(3) with respect to the portion of the accrued 
benefit derived from employee contributions (the employee-provided 
accrued benefit) that is computed in accordance with the rules of 
section 411(c)(2), the probability of death before the assumed 
commencement date may not be taken into account. This rule is different 
from the rule that applies to the portion of the accrued benefit

[[Page 3555]]

derived from employer contributions (the employer-provided accrued 
benefit) because an employee's rights in the employee-provided accrued 
benefit are nonforfeitable under section 411(a)(1), and the exception 
for death under section 411(a)(3)(A) to the nonforfeitability of the 
employer-provided accrued benefit does not apply to the employee-
provided accrued benefit.
    These regulations include an example to illustrate the application 
of the minimum present value requirements of section 417(e)(3) in the 
case of a single-sum distribution of a participant's entire accrued 
benefit that consists of both the employee-provided accrued benefit and 
the employer-provided accrued benefit. Consistent with the rules in 
these regulations, the example illustrates that a single-sum 
distribution of the participant's entire accrued benefit in this case 
must be no less than the sum of the minimum present value of the 
employee-provided accrued benefit, determined under section 417(e)(3) 
(applying the special rules set forth in the preceding paragraph), and 
the minimum present value of the employer-provided accrued benefit, 
determined under section 417(e)(3).
    Note that Rev. Rul. 89-60, 1989-1 CB 113 (as corrected by 
Announcement 89-65, 1989-21 IRB 33), provides that it is sufficient for 
a single-sum distribution to equal the greater of: (1) the minimum 
present value of the employee-provided accrued benefit (determined 
using the actuarial assumptions specified in section 411(c)(2) and Rev. 
Rul. 76-47, 1976-1 CB 109, taking into account the principle 
illustrated in Rev. Rul. 78-202, 1978-1 CB 124), and (2) the minimum 
present value of the participant's entire accrued benefit using plan 
assumptions subject to the interest rate limitation of section 417(e). 
The determination under Rev. Rul. 89-60 of these minimum present values 
does not reflect the specification in 1994 of a mortality assumption in 
section 417(e)(3)(B).\6\ Several commenters noted that some plan 
sponsors, in the absence of updated guidance following the 1994 
amendment to section 417(e), have applied a preretirement mortality 
discount to both the employer-provided and employee-provided portions 
of the accrued benefit. These regulations modify and supersede the 
guidance in Rev. Rul. 89-60 to the extent the revenue ruling is 
inconsistent with these regulations.
---------------------------------------------------------------------------

    \6\ See section 767 of RPA '94.
---------------------------------------------------------------------------

    Several commenters raised concerns that the prohibition on taking 
preretirement mortality into account in determining the present value 
of the employee-provided accrued benefit would require a 
redetermination of a participant's remaining accrued benefit if the 
participant had received a partial distribution in the past. As 
discussed in the ``Applicability Dates'' section of this preamble, 
these regulations do not change the results of calculations that were 
made in accordance with the rules that applied before the applicability 
date of these regulations. Therefore, the regulations would not require 
the redetermination of a participant's remaining accrued benefit in 
such a case.
    One commenter observed that some employers would prefer not to use 
different factors for the employer-provided portion of a benefit and 
the employee-provided portion of a benefit (and accordingly would like 
to determine the full amount of a single-sum distribution using the 
factor required to be used for the employee-provided portion of the 
benefit). A single-sum distribution determined in this manner would be 
greater than the minimum single-sum distribution that would satisfy 
section 417(e)(3) (and therefore would not be eligible for the 
exception to the requirement under Sec.  1.401(a)-20, Q&A-16). To 
address this concern, these regulations provide a second expansion of 
eligibility to use that exception. Under this rule (at Sec.  1.417(e)-
1(d)(2)(ii)(C)(2)), the amount payable under an optional form of 
benefit is treated as calculated using the applicable interest rate and 
applicable mortality table under section 417(e)(3) (and therefore is 
eligible for the exception to Sec.  1.401(a)-20, Q&A-16), even if, 
under the plan, the present value factor used for the employer-provided 
portion of the benefit is the present value factor that is required to 
be used for the employee-provided portion of the benefit (that is, a 
present value factor that does not take into account preretirement 
mortality).
    Some commenters raised concerns about the implications of the rule 
that the probability of death is taken into account in determining 
minimum present value for distributions commencing after normal 
retirement age. Section 1.417(e)-1(d)(1)(i)(A) provides that, for a 
distribution commencing after normal retirement age, the minimum 
present value under section 417(e)(3) is determined based on the 
immediate annuity rather than the accrued benefit payable as of normal 
retirement age. However, the extent to which the probability of death 
is taken into account in determining the annuity commencing after 
normal retirement age that is actuarially equivalent to the accrued 
benefit commencing at normal retirement age is an issue that arises 
under section 411(a), rather than under section 417(e)(3), and is 
expected to be addressed in future proposed regulations under section 
411(a).\7\
---------------------------------------------------------------------------

    \7\ The preamble to the proposed regulations requested comments 
on the issue of whether, in the case of a plan that provides a 
subsidized annuity payable upon early retirement and determines a 
single-sum distribution as the present value of the early retirement 
annuity, the present-value determination should be required to be 
calculated using the applicable interest rate and the applicable 
mortality table applied to the early retirement annuity. See 
Rybarczyk v. TRW, 235 F.3d 975, 983 (6th Cir. 2000) (an early 
retirement single-sum distribution option that was determined based 
on the early retirement annuity was not required to be calculated 
using the section 417(e) factors, provided that the lump sum was at 
least as great as the present value of the deferred annuity 
determined using the section 417(e) factors); but see Costantino v. 
TRW, 13 F.3d 969, 979 (6th Cir. 1994) (benefit distributions must 
comply with the valuation rule of Sec.  1.411(a)-11(a)(2)). A number 
of comments were received on this issue, many of which noted that 
the topic is also addressed in Sec.  1.411(a)-11(a)(2). These 
comments will be considered in connection with the development of 
proposed regulations under section 411(a), rather than in these 
regulations under section 417(e).
---------------------------------------------------------------------------

4. Social Security Level Income Options

    The proposed regulations address the applicability of the minimum 
present value requirements of section 417(e)(3) to a Social Security 
level income option (SSLIO). An SSLIO is an optional form of benefit 
(within the meaning of section 411(d)(6)(B) and Sec.  1.411(d)-
3(g)(6)(ii)) under which a participant's accrued benefit is paid in the 
form of an annuity for the life of the participant, with additional 
temporary annuity payments in earlier years, before an assumed Social 
Security commencement age, to provide the participant with 
approximately level retirement income when the estimated Social 
Security payments are taken into account.
    As noted in the Background section of this preamble, Sec.  
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 both commences 
and terminates before the age when participants are entitled to old-age 
insurance benefits, unreduced on account of age, under title II of the 
Social Security Act (42 U.S.C. Chapter 7, subchapter II), as amended, 
and does

[[Page 3556]]

not exceed those old-age insurance benefits. A Social Security 
supplement (other than a QSUPP as defined in Sec.  1.401(a)(4)-12) is 
an ancillary benefit within the meaning of Sec.  1.411(d)-3(g)(2) that 
is not a section 411(d)(6) protected benefit.
    Because the periodic payments under an SSLIO decrease during the 
lifetime of the participant and the decrease is not the result of the 
cessation of an ancillary Social Security supplement, Sec.  1.417(e)-
1(d)(6) does not provide an exception from the minimum present value 
requirements of section 417(e)(3) for this form of benefit. The 
proposed regulations included an example illustrating the application 
of the minimum present value requirements of section 417(e)(3) to an 
SSLIO. Commenters expressed a variety of views regarding this example. 
One commenter stated that it is reasonable to apply the minimum present 
value requirements to an SSLIO, while another commenter maintained that 
the minimum present value requirements should not apply to any optional 
forms of benefit other than a single-sum distribution. Some commenters 
suggested that the minimum present value requirements should apply only 
to the determination of the temporary annuity payments under an SSLIO 
and that the implicit bifurcation rule of Sec.  1.417(e)-1(d)(7)(ii)(B) 
should be expanded to permit bifurcation of that option into a 
temporary annuity portion and a remaining accrued benefit.
    The Treasury Department and the IRS believe that it is appropriate 
to apply the rules of section 417(e)(3) to an SSLIO because, when a 
participant's lifetime benefit is paid in that form, a portion of those 
benefits (which may be a substantial portion of the participant's 
lifetime benefits) is accelerated and paid over a short period of time 
(that is, until assumed Social Security retirement age). Nevertheless, 
the Treasury Department and the IRS agree with those commenters who 
suggested that it is appropriate to permit a plan to satisfy section 
417(e)(3) by implicitly bifurcating the participant's benefit payable 
in the form of an SSLIO into a temporary annuity portion and a 
remaining annuity benefit. As a result, the regulations include a new 
implicit bifurcation rule for an SSLIO at Sec.  1.417(e)-
1(d)(7)(ii)(C).
    Under the new implicit bifurcation rule, the plan satisfies the 
minimum present value requirements of section 417(e)(3) with respect to 
the temporary annuity portion of an SSLIO if the plan satisfies two 
minimum requirements with respect to the remaining annuity benefit. 
First, the remaining accrued benefit expressed in the normal form and 
payable at normal retirement age (or current age, if later) must be at 
least as great as it would be if an annuity payable in that form and 
commencing at that age that is actuarially equivalent to the temporary 
annuity (determined using the applicable section 417(e)(3) assumptions) 
were subtracted from the participant's accrued benefit. Second, the 
remaining immediate annuity expressed in the normal form must be at 
least as great as it would be if an immediate annuity payable in that 
form that is actuarially equivalent to the temporary annuity 
(determined using the applicable section 417(e)(3) assumptions) were 
subtracted from the immediate annuity. The regulations include an 
example illustrating the application of the minimum present value 
requirements of section 417(e)(3) to an SSLIO and an example to 
illustrate the application of the new implicit bifurcation rule to an 
SSLIO. A plan amendment that provides for implicit bifurcation of an 
SSLIO in accordance with this new rule must comply with the 
requirements of section 411(d)(6).

5. Section 411(d)(6) Relief for Changes in Lookback Months and 
Stability Periods for Mortality Table and Interest Rate

    The proposed regulations retained the rules providing relief under 
section 411(d)(6) for a plan amendment that changes lookback months or 
stability periods for the applicable mortality table and applicable 
interest rate under section 417(e)(3). Under these rules, such a plan 
amendment does not violate section 411(d)(6) provided that, for a 
specified period, the participant is entitled to the greater of the 
benefits under the pre- and post-amendment timing rules. Commenters 
asked that this relief under section 411(d)(6) be expanded to apply to 
amendments that change the time for determining an interest rate or 
mortality table that is used for any purpose. Commenters observed that, 
given the requirement to use the more participant-favorable of the two 
sets of assumptions for a specified period, expanding this rule cannot 
be used to manipulate assumptions in the plan sponsor's favor.
    In response, these regulations expand the rule previously set forth 
in the regulations under section 417(e) by adopting a comparable rule 
under section 411(d)(6), which is set forth in Sec.  1.411(d)-3(a), 
that applies to amendments that change the time for determining an 
interest rate or mortality table that is used for any purpose. Under 
these regulations, a defined benefit plan may be amended by an 
amendment that is adopted on or after January 19, 2024 to change the 
stability period from one stability period permitted under Sec.  
1.417(e)-1(d)(4)(ii) to a different permitted stability period, or to 
change the lookback month described in Sec.  1.417(e)-1(d)(4)(iii) from 
one permitted lookback month to a different permitted lookback month 
(including an indirect change to the stability period or lookback month 
as a result of a change in plan year). Such an amendment may be made 
with respect to any plan provision under which an interest rate or 
mortality table is specified by reference to a stability period or a 
lookback month, provided that the amount of any distribution for which 
the annuity starting date occurs on or after the effective date of the 
amendment and before the end of the one year period commencing on the 
applicable amendment date for the amendment is determined using the 
more participant-favorable of the two sets of assumptions.
    For an amendment that changes the time for determining an interest 
rate or mortality table that is used for a purpose other than the 
minimum present value rules of section 417(e)(3), and that is adopted 
before January 19, 2024, whether an impermissible cutback under section 
411(d)(6) has occurred is based on applicable law on the date the 
amendment is adopted. Thus, for example, if a plan amendment adopted 
before January 19, 2024 was permitted under Sec.  1.417(e)-1(d)(10)(ii) 
as in effect before the amendments made by these regulations, no 
violation of section 411(d)(6) will have occurred as a result of that 
plan amendment.
    Commenters requested that relief from the anti-cutback rules of 
section 411(d)(6) be provided in additional situations. These 
situations involve plans that have been applying section 417(e) to 
determine the amount of a benefit but could satisfy section 417(e) 
using a less generous benefit calculation than is permitted under these 
regulations, such as the application of a preretirement mortality 
discount or the implicit bifurcation of a benefit paid in the form of 
an SSLIO. Commenters requested section 411(d)(6) relief for such a plan 
so that the plan could be amended to apply the less generous benefit 
calculation to benefits already accrued. The final regulations do not 
provide the requested section 411(d)(6) relief but instead provide the 
relief under Sec.  1.401(a)-20, Q&A-16 described earlier in this 
Summary of Comments and Explanation of Provisions.

[[Page 3557]]

6. Applicability Dates

    The changes to the regulations under section 417(e)(3) apply to 
distributions with annuity starting dates occurring on or after October 
1, 2024, except as otherwise provided. For earlier distributions, the 
rules of Sec.  1.417(e)-1(d) as set forth in 26 CFR part 1, revised as 
of April 1, 2023, apply (taking into account any statutory changes and 
guidance of general applicability relating to those statutory changes), 
except that taxpayers may instead apply the rules of this Treasury 
decision. For example, if, before October 1, 2024, a participant 
received a payment equal to the present value of the participant's 
employee-provided benefit determined in accordance with the valuation 
rules of section 417(e)(3) and Sec.  1.417(e)-1(d) that applied at the 
time of the distribution, then the determination of the participant's 
remaining accrued benefit is not affected by any differences between 
those rules and the rules in this Treasury decision (unless the 
taxpayer chooses to apply the applicable rules of this Treasury 
decision).
    The amendments to Sec.  1.411(d)-3(a) apply to plan amendments 
adopted on or after January 19, 2024.

Special Analyses

1. Regulatory Planning and Review--Economic Analysis

    Pursuant to the Memorandum of Agreement, Review of Treasury 
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory 
actions issued by the IRS are not subject to the requirements of 
section 6 of Executive Order 12866, as amended. Therefore, a regulatory 
impact assessment is not required.

2. Regulatory Flexibility Act

    It is hereby certified that these regulations will not have a 
significant economic impact on a substantial number of small entities 
pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6). This 
certification is based on the fact that the regulations reflect the 
statutory changes to section 417(e) made by PPA '06 and also provide 
additional flexibility in plan design. Specifically, the regulations 
reflect the statute in a manner that (i) is consistent with the 
statutory language, (ii) provides certain clarifications, and (iii) 
eases and facilitates plan administration. Although the regulations 
might affect a substantial number of individuals, the economic impact 
of the regulations on small businesses is not expected to be 
significant. For example, while the regulations clarify the application 
of the minimum present value requirements of section 417(e) to an 
SSLIO, most defined benefit plans sponsored by small employers do not 
include an SSLIO. Moreover, for those plans that do provide for SSLIOs, 
the regulations provide flexibility in the application of the minimum 
present value requirements by permitting the implicit bifurcation of 
the SSLIO into a temporary annuity (required to be determined using the 
minimum present value factors under section 417(e)(3)) and a life 
annuity (to which the minimum present value requirements do not apply). 
These regulations are not expected to result in any economically 
meaningful changes in behavior by small employers that sponsor defined 
benefit plans.
    For the reasons stated, a regulatory flexibility analysis under the 
Regulatory Flexibility Act is not required. Pursuant to section 
7805(f), the notice of proposed rulemaking preceding these regulations 
was submitted to the Chief Counsel for Advocacy of the Small Business 
Administration for comment on their impact on small business, and no 
comments were received.

3. Unfunded Mandates Reform Act

    Section 202 of the Unfunded Mandates Reform Act of 1995 requires 
that agencies assess anticipated costs and benefits and take certain 
other actions before issuing a final rule that includes any Federal 
mandate that may result in expenditures in any one year by a State, 
local, or Tribal government, in the aggregate, or by the private 
sector, of $100 million in 1995 dollars, updated annually for 
inflation. These regulations do not include any Federal mandate that 
may result in expenditures by State, local, or Tribal governments, or 
by the private sector in excess of that threshold.

4. Executive Order 13132 (Federalism)

    Executive Order 13132 (Federalism) prohibits an agency from 
publishing any rule that has federalism implications if the rule either 
imposes substantial, direct compliance costs on State and local 
governments, and is not required by statute, or preempts State law, 
unless the agency meets the consultation and funding requirements of 
section 6 of the Executive order. These regulations do not have 
federalism implications, impose substantial direct compliance costs on 
State and local governments, or preempt State law within the meaning of 
the Executive order.

5. Congressional Review Act

    Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq.), 
the Office of Information and Regulatory Affairs designated this rule 
as not a major rule, as defined by 5 U.S.C. 804(2).

Statement of Availability of IRS Documents

    IRS Revenue Rulings, Revenue Procedures, and Notices cited in this 
document are published in the Internal Revenue Bulletin (or Cumulative 
Bulletin) and are available from the Superintendent of Documents, U.S. 
Government Printing Office, Washington, DC 20402, or by visiting the 
IRS website at www.irs.gov.

Drafting Information

    The principal authors of these regulations are Diane S. Bloom and 
Linda S.F. Marshall, Office of Associate Chief Counsel (Employee 
Benefits, Exempt Organizations, and Employment Taxes). However, other 
personnel from the IRS and the Treasury Department participated in the 
development of these regulations.

List of Subjects in 26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

    Accordingly, the Treasury Department and the IRS amend 26 CFR part 
1 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 1.411(d)-3 is amended by redesignating paragraph (a)(4) 
as paragraph (a)(5) and adding a new paragraph (a)(4) to read as 
follows:


Sec.  1.411(d)-3  Section 411(d)(6) protected benefits.

    (a) * * *
    (4) Changes in lookback months and stability periods for mortality 
table and interest rate. Subject to the rules of this paragraph (a)(4), 
a defined benefit plan may be amended by an amendment that is adopted 
on or after January 19, 2024 to change the stability period described 
in Sec.  1.417(e)-1(d)(4)(ii) from one stability period to a different 
stability period or to change the lookback month described in Sec.  
1.417(e)-1(d)(4)(iii) from one lookback month to a different lookback 
month (including an indirect change to the stability period or lookback 
month as a result of a change in plan year). The amendments described 
in this paragraph (a)(4) may be made with respect to any plan provision 
under which an interest rate

[[Page 3558]]

or mortality table is specified by reference to a stability period or a 
lookback month, provided that any distribution for which the annuity 
starting date occurs on or after the effective date of the amendment 
and before the end of the one-year period commencing on the applicable 
amendment date for the amendment is equal to the greater of--
    (i) The amount determined using the pre-amendment stability period 
and lookback month; and
    (ii) The amount determined using the post-amendment stability 
period and lookback month.
* * * * *

0
Par. 3. Section 1.417(e)-1 is amended by:
0
a. Revising paragraphs (d)(1)(i) and (d)(2) through (4) and (6);
0
b. Adding paragraphs (d)(7)(ii)(C) and (D);
0
c. In paragraph (d)(7)(v), redesignating Examples 1 through 7 as 
paragraphs (d)(7)(v)(A) through (G), respectively;
0
d. In newly designated paragraphs (d)(7)(v)(A) through (G), 
redesignating the paragraphs in the first column as the paragraphs in 
the second column:

------------------------------------------------------------------------
                                             Further redesignated as
     Newly redesignated paragraphs                  paragraphs
------------------------------------------------------------------------
(d)(7)(v)(A)(i) through (iv)...........  (d)(7)(v)(A)(1) through (4).
(d)(7)(v)(B)(i) through (v)............  (d)(7)(v)(B)(1) through (5).
(d)(7)(v)(C)(i) through (iv)...........  (d)(7)(v)(C)(1) through (4).
(d)(7)(v)(D)(i) and (ii)...............  (d)(7)(v)(D)(1) and (2).
(d)(7)(v)(E)(i) through (iv)...........  (d)(7)(v)(E)(1) through (4).
(d)(7)(v)(F)(i) through (iv)...........  (d)(7)(v)(F)(1) through (4).
(d)(7)(v)(G)(i) through (iii)..........  (d)(7)(v)(G)(1) through (3).
------------------------------------------------------------------------

0
e. In newly designated paragraph (d)(7)(v)(C)(1), removing the language 
``Example 2 of this paragraph (d)(7)(v)'' and adding the language 
``paragraph (d)(7)(v)(B)(1) of this section (Example 2)'' in its place;
0
f. In newly designated paragraph (d)(7)(v)(E)(1), removing the language 
``Example 4 of this paragraph (d)(7)(v)'' and adding the language 
``paragraph (d)(7)(v)(D)(1) of this section (Example 4)'' in its place;
0
g. In newly designated paragraph (d)(7)(v)(E)(2), removing the language 
``Example 4 of this paragraph (d)(7)(v)'' and adding the language 
``paragraph (d)(7)(v)(D)(1) of this section (Example 4)'' in its place;
0
h. Adding paragraph (d)(7)(v)(H);
0
i. Adding paragraph (d)(8)(vi);
0
j. Revising paragraph (d)(9); and
0
k. Removing paragraph (d)(10).
    The revisions and additions read as follows:


Sec.  1.417(e)-1  Restrictions and valuations of distributions from 
plans subject to sections 401(a)(11) and 417.

* * * * *
    (d) * * *
    (1) * * *
    (i) Defined benefit plans--(A) In general. A defined benefit plan 
must provide that the present value of any accrued benefit and the 
amount (subject to sections 411(c)(3) and 415) of any distribution, 
including a single-sum distribution, must not be less than the amount 
calculated using the applicable mortality table described in paragraph 
(d)(2) of this section and the applicable interest rate described in 
paragraph (d)(3) of this section, as determined for the month described 
in paragraph (d)(4) of this section. In the case of an optional form of 
benefit payable before normal retirement age, the present value of the 
optional form determined in accordance with the preceding sentence may 
not be less than the present value of the accrued benefit payable at 
normal retirement age. In the case of an optional form of benefit 
payable on or after normal retirement age, the present value of the 
optional form determined in accordance with the first sentence of this 
paragraph (d)(1)(i)(A) may not be less than the present value of the 
immediate annuity (payable in the same form as the accrued benefit is 
expressed). The present value determined under this paragraph (d) also 
applies for purposes of determining whether consent for a distribution 
is required under paragraph (b) of this section.
    (B) Payment of a portion of a participant's benefit. The rules of 
this paragraph (d)(1) apply with respect to a payment of only a portion 
of the accrued benefit in the same manner as these rules would apply to 
a distribution of the entire accrued benefit. See paragraph (d)(7) of 
this section for rules relating to such a bifurcation of a 
participant's accrued benefit.
    (C) Special rules for applicable defined benefit plans. See section 
411(a)(13) and Sec.  1.411(a)(13)-1 for an exception from the rules of 
section 417(e)(3) and this paragraph (d) that applies to certain 
distributions from plans with lump sum-based benefit formulas.
* * * * *
    (2) Applicable mortality table--(i) In general. The applicable 
mortality table for a calendar year is the mortality table that is 
prescribed by the Commissioner in guidance published in the Internal 
Revenue Bulletin. See Sec.  601.601(d) of this chapter. This mortality 
table is to be based on the table specified under section 430(h)(3)(A), 
but without regard to section 430(h)(3)(C) or (D).
    (ii) Mortality discounts--(A) In general. Except as provided in 
paragraph (d)(2)(ii)(B) of this section, the probability of death under 
the applicable mortality table is taken into account for purposes of 
determining the present value under this paragraph (d) without regard 
to the death benefits provided under the plan (other than a death 
benefit that is part of the normal form of benefit or part of another 
optional form of benefit, as described in Sec.  1.411(d)-
3(g)(6)(ii)(B), for which present value is determined).
    (B) Special rule for employee-provided benefit. For purposes of 
determining the present value under this paragraph (d) with respect to 
the portion of the accrued benefit derived from employee contributions 
(that is determined in accordance with the rules of section 411(c)), 
the probability of death during the assumed deferral period, if any, is 
not taken into account. For purposes of the preceding sentence, the 
assumed deferral period is the period between the date of the present 
value determination and the assumed commencement date for the annuity 
attributable to the accrued benefit derived from employee 
contributions.
    (C) Exception from requirement that QJSA be most valuable form of 
benefit. An optional form of benefit that is subject to the minimum 
present value requirement of this section is not treated as failing the 
requirement under Sec.  1.401(a)-20, Q&A-16, that an optional form of 
benefit for a married participant may not be more valuable than the 
qualified joint and survivor annuity payable at the same time merely 
because, in applying the rules of this

[[Page 3559]]

section in determining the amount of the optional form of benefit, the 
amount payable is calculated--
    (1) Taking into account both the probability of death before 
retirement and any death benefit under the plan, or
    (2) Using the present value factor for the employee-provided 
portion of the benefit determined under paragraph (d)(2)(ii)(B) of this 
section as the present value factor for the employer-provided portion 
of the benefit.
    (3) Applicable interest rate--(i) In general. The applicable 
interest rate for a month is determined using the first, second, and 
third segment rates for that month under section 430(h)(2)(C), as 
modified pursuant to section 417(e)(3)(D) (and without regard to the 
segment rate stabilization rules of section 430(h)(2)(C)(iv)). These 
section 417(e) segment rates are specified by the Commissioner in 
revenue rulings, notices, or other guidance published in the Internal 
Revenue Bulletin and are applied under rules similar to the rules under 
Sec.  1.430(h)(2)-1(b). Thus, for example, in determining the present 
value of a straight life annuity, the first segment rate is applied 
with respect to payments expected to be made during the 5-year period 
beginning on the annuity starting date, the second segment rate is 
applied with respect to payments expected to be made during the 15-year 
period following the end of that 5-year period, and the third segment 
rate is applied with respect to payments expected to be made after the 
end of that 15-year period. The section 417(e) segment rates that are 
published by the Commissioner are to be used for this purpose without 
further adjustment.
    (ii) Examples. The following examples illustrate the rules of 
paragraphs (d)(2) and (d)(3)(i) of this section:
    (A) Example 1--(1) Facts. Plan A is a non-contributory defined 
benefit plan with a calendar-year plan year. The normal retirement age 
is 65, and all participant elections are made with proper spousal 
consent. Plan A includes an optional form of benefit that provides a 
single-sum distribution equal to the present value of the participant's 
accrued benefit. Plan A provides that the applicable interest rate for 
any distribution is determined using the segment rates as specified by 
the Commissioner for the month preceding the month containing the 
annuity starting date of the distribution. The applicable mortality 
table is the table specified by the Commissioner for the calendar year 
that contains the annuity starting date.
    (2) Analysis of minimum amount of single-sum distribution. 
Participant P retires in November 2024 at age 60 and elects (with 
spousal consent) to receive a single-sum distribution. P has an accrued 
benefit of $2,000 per month payable as a life annuity beginning at the 
plan's normal retirement age of 65. The applicable mortality rates for 
2024 apply. For purposes of this paragraph (d)(3)(ii)(A) (Example 1), 
the section 417(e) segment rates published by the Commissioner for 
October 2024 are assumed to be 3.00 percent, 4.00 percent, and 5.00 
percent for the first, second, and third segment rates, respectively. 
The present value factor for a participant, age 60, for a deferred 
annuity payable at age 65, calculated based on these interest rates and 
the applicable mortality table for 2024, is 10.432. To satisfy the 
requirements of section 417(e)(3) and this paragraph (d), the single-
sum distribution received by P cannot be less than $250,368 (that is, 
$2,000 x 12 x 10.432).
    (B) Example 2--(1) Facts. The facts are the same as in paragraph 
(d)(3)(ii)(A)(1) of this section (Example 1), except that Plan A 
provides for mandatory employee contributions. Participant Q retires in 
November 2024 at age 60 and elects (with spousal consent) to receive a 
single-sum distribution of Q's entire accrued benefit. Q has an accrued 
benefit of $2,000 per month payable as a life annuity beginning at Plan 
A's normal retirement age of 65, consisting of an accrued benefit 
derived from employee contributions determined in accordance with 
section 411(c)(2) (Q's employee-provided accrued benefit) of $500 per 
month and an accrued benefit derived from employer contributions (Q's 
employer-provided accrued benefit) of $1,500 per month.
    (2) Analysis of minimum amount of the employee-provided portion of 
the single-sum distribution. Pursuant to paragraph (d)(2)(ii)(B) of 
this section, the single-sum distribution used to settle Q's employee-
provided accrued benefit may not be less than the present value of the 
employee-provided portion of Q's accrued benefit determined using the 
applicable interest and mortality rates described in paragraphs 
(d)(2)(i) and (d)(3)(i) of this section, but without taking into 
account the probability of death during the assumed deferral period in 
accordance with paragraph (d)(2)(ii)(B) of this section. The present 
value factor for a participant, age 60, for a deferred annuity payable 
at age 65, calculated based on the interest and mortality rates 
specified in paragraph (d)(3)(ii)(A) of this section (Example 1), 
taking the probability of death only after age 65 into account, is 
10.704. To satisfy the requirement of section 417(e)(3) and this 
paragraph (d), the single-sum distribution received by Q with respect 
to the employee-provided portion of the accrued benefit may not be less 
than $64,224 (that is, $500 x 12 x 10.704).
    (3) Analysis of minimum amount of the employer-provided portion of 
the single-sum distribution. The single-sum distribution made to settle 
Q's employer-provided accrued benefit may not be less than the present 
value of that portion of Q's accrued benefit determined using the 
applicable interest and mortality rates. However, for this purpose, 
Plan A is permitted to take into account the probability of death 
during the assumed deferral period in accordance with paragraph 
(d)(2)(ii)(A) of this section. The single-sum distribution received by 
Q with respect to the employer-provided portion of the accrued benefit 
may not be less than $187,776 (that is, $1,500 x 12 x 10.432).
    (4) Analysis of minimum amount of the total single-sum 
distribution. To satisfy the requirements of section 417(e)(3) and this 
paragraph (d), the total single-sum distribution received by Q may not 
be less than the sum of the minimum single-sum distribution with 
respect to the employee-provided and employer-provided portions of the 
accrued benefit, or $252,000 ($64,224 + $187,776).
    (5) Analysis of minimum amount of partial single-sum distribution. 
If Q were to receive a partial single-sum distribution (that is, a 
single-sum distribution that is less than $252,000) with the balance 
payable as an annuity, then, in accordance with paragraph 
(d)(7)(iii)(D) of this section, the plan must specify the portion of 
the participant's accrued benefit that is settled by that distribution 
of the partial single-sum distribution (unless the plan uses the same 
single-sum factor with respect to all portions of the accrued benefit). 
Because the present value factor for the employee-provided benefit 
cannot take into account the probability of death before age 65, the 
plan may use the same present value factor to determine the portion of 
the accrued benefit that is settled by the single-sum distribution that 
applies to both the employee-provided and the employer-provided 
portions of the accrued benefit only if the factor that is used does 
not take into account the probability of death before age 65.
    (4) Time for determining interest rate and mortality table--(i) 
Interest rate general rule. Except as provided in paragraphs (d)(4)(v) 
or (vi) of this section, the applicable interest rate to be used for a 
distribution is the applicable

[[Page 3560]]

interest rate determined under paragraph (d)(3) of this section for the 
applicable lookback month. The applicable lookback month for a 
distribution is the lookback month (as described in paragraph 
(d)(4)(iv) of this section) for the stability period (as described in 
paragraph (d)(4)(iii) of this section) that contains the annuity 
starting date for the distribution. The time and method for determining 
the applicable interest rate for each participant's distribution must 
be determined in a consistent manner that is applied uniformly to all 
participants in the plan.
    (ii) Mortality table general rule. The applicable mortality table 
to be used for a distribution is the mortality table that is described 
in paragraph (d)(2)(i) of this section for the calendar year during 
which the stability period containing the annuity starting date begins.
    (iii) Stability period. A plan must specify the period for which 
the applicable interest rate remains constant (the stability period). 
This stability period may be one calendar month, one plan quarter, one 
calendar quarter, one plan year, or one calendar year. This same 
stability period also applies to the applicable mortality table.
    (iv) Lookback month. A plan must specify the lookback month that is 
used to determine the applicable interest rate with respect to a 
stability period. The lookback month may be the first, second, third, 
fourth, or fifth full calendar month preceding the first day of the 
stability period.
    (v) Permitted average interest rate. A plan may apply the rules of 
paragraph (d)(4)(i) of this section by substituting a permitted average 
applicable interest rate with respect to the plan's stability period 
for the applicable interest rate determined under paragraph (d)(3) of 
this section for the applicable lookback month with respect to the 
plan's stability period. For this purpose, a permitted average 
applicable interest rate with respect to a stability period is the 
applicable interest rate that is computed using the average of the 
section 417(e) segment rates described in paragraph (d)(3) of this 
section for two or more consecutive months from among the first, 
second, third, fourth, and fifth calendar months preceding the first 
day of the stability period. For this paragraph (d)(4)(v) to apply, a 
plan must specify the manner in which the permitted average interest 
rate is computed.
    (vi) Additional determination dates. The Commissioner may 
prescribe, in guidance published in the Internal Revenue Bulletin, 
other times that a plan may provide for determining the applicable 
interest rate. See Sec.  601.601(d) of this chapter.
    (vii) Example of determination of applicable interest rate--(A) 
Facts. The facts are the same as in paragraph (d)(3)(ii)(A)(1) of this 
section (Example 1), except that Plan A provides that the applicable 
interest rate for any annuity starting date is determined using the 
segment rates specified by the Commissioner for the third calendar 
month preceding the beginning of the plan quarter that contains the 
annuity starting date. Plan A also provides that the applicable 
mortality table is the table specified by the Commissioner for the 
calendar year that contains the beginning of the quarterly stability 
period.
    (B) Analysis. The segment rates that apply for annuity starting 
dates during the period beginning October 1, 2024, and ending December 
31, 2024, are the segment rates for July 2024. This plan design permits 
the applicable interest rate to be fixed for each plan quarter and for 
the applicable interest rate for all distributions made during each 
plan quarter to be determined before the beginning of the plan quarter.
* * * * *
    (6) Exceptions--(i) In general. This paragraph (d) (other than the 
provisions relating to section 411(d)(6) requirements in paragraph 
(d)(9) of this section) does not apply to the amount of a distribution 
paid in the form of an annual benefit that--
    (A) Does not decrease during the life of the participant, or, in 
the case of a QPSA, the life of the participant's spouse; or
    (B) Decreases during the life of the participant merely because 
of--
    (1) The death of the survivor annuitant (but only if the reduction 
is to a level not below 50 percent of the annual benefit payable before 
the death of the survivor annuitant); or
    (2) The cessation or reduction of a Social Security supplement or 
qualified disability benefit (as defined in section 411(a)(9)).
    (ii) Example of Social Security level income option--(A) Facts. The 
facts are the same as in paragraph (d)(3)(ii)(A)(1) of this section 
(Example 1). Plan A also provides for an optional distribution in the 
form of a Social Security level income option that is actuarially 
equivalent to the straight life annuity payable at the same 
commencement date. Under this optional form, the participant receives a 
larger monthly payment until age 65, and a smaller monthly payment 
afterward, so that it is estimated that the participant will receive 
level monthly payments for life (taking into account the participant's 
estimated Social Security benefit beginning at age 65). Based on the 
plan's early retirement reduction factor of 0.65 at age 60, Participant 
R's reduced early retirement benefit payable as a straight life annuity 
benefit commencing at age 60 is $1,300 per month (which is less than 
the early retirement benefit that is actuarially equivalent to the 
accrued benefit determined using the applicable interest and mortality 
rates under section 417(e)(3)). Participant R's estimated Social 
Security benefit is $1,000 per month beginning at age 65. Plan A 
provides that actuarial equivalence is determined using a 6 percent 
interest rate and the mortality table set forth in Revenue Ruling 2001-
62, 2001-53 IRB 632.
    (B) Analysis of benefit calculation using plan factors. Using the 
plan's terms for determining actuarial equivalence (an interest rate of 
6 percent and the mortality table set forth in Revenue Ruling 2001-62), 
the present value factor for a participant, age 60, with lifetime 
benefits commencing at age 65 is 7.800, and the present value factor 
for a temporary annuity payable to that participant until age 65 is 
4.278. The benefit payable to Participant R in the form of a Social 
Security level income option (with a decrease of $1,000 occurring at 
age 65) that is actuarially equivalent to the early retirement benefit 
of $1,300 is $1,945.80 per month until age 65 and $945.80 per month 
thereafter.
    (C) Analysis of minimum present value. Because the benefit payable 
under the Social Security level income option decreases at age 65 and 
the decrease is not on account of the death of the participant or a 
beneficiary or the cessation or reduction of a Social Security 
supplement or a qualified disability benefit, the exception under this 
paragraph (d)(6) from the minimum present value requirements of section 
417(e)(3) does not apply to the benefits payable under the plan's 
Social Security level income option. As illustrated in paragraph 
(d)(3)(ii)(A) of this section (Example 1), to satisfy the requirements 
of section 417(e)(3) and this paragraph (d), the minimum present value 
of a benefit payable to Participant R at age 60 cannot be less than 
$250,368 (that is, $2,000 x 12 x 10.432).
    (D) Conclusion. Based on the applicable interest rate and 
applicable mortality table under section 417(e)(3) that are assumed in 
paragraph (d)(3)(ii)(A) of this section (Example 1), the present value 
factor for a participant, age 60, with lifetime benefits commencing at 
age 65 is 10.432, and the present value factor for

[[Page 3561]]

a temporary annuity payable until age 65 is 4.604. The present value of 
the benefit payable to Participant R under the Social Security level 
income option is $225,901 ($1,945.80 x 4.604 x 12 + $945.80 x 10.432 x 
12). Because this present value is less than the minimum present value 
of a benefit payable to Participant R at age 60 ($250,368), the plan 
would fail to satisfy the minimum present value requirement of section 
417(e)(3). However, see paragraph (d)(7)(ii)(C) of this section for a 
rule permitting a plan to provide for implicit bifurcation of a Social 
Security level income option.
    (7) * * *
    (ii) * * *
    (C) Bifurcation of Social Security level income option. A plan that 
provides for a Social Security level income option satisfies the 
requirements of this paragraph (d) with respect to the temporary 
annuity portion of the Social Security level income option if, under 
the terms of the plan--
    (1) The portion of the participant's accrued benefit, expressed in 
the normal form of benefit under the plan and commencing at normal 
retirement age (or at the current date, if later), that is not paid in 
the form of the temporary annuity is no less than the excess, if any, 
of--
    (i) The participant's total accrued benefit under the plan 
expressed in that form and commencing at that age; over
    (ii) The annuity payable in that form commencing at that age that 
is actuarially equivalent to that temporary annuity, determined using 
the applicable interest rate and the applicable mortality table; and
    (2) The portion of the participant's immediate annuity (payable in 
the same form as the accrued benefit is expressed) that is not paid in 
the form of the temporary annuity is no less than the excess, if any, 
of--
    (i) The participant's immediate annuity (payable in the same form 
as the accrued benefit is expressed); over
    (ii) The immediate annuity payable in that form that is actuarially 
equivalent to that temporary annuity, determined using the applicable 
interest rate and the applicable mortality table.
    (D) Social Security level income option. For purposes of paragraph 
(d)(7)(ii)(C) of this section, a Social Security level income option is 
an optional form of benefit under which a participant's accrued benefit 
is paid in the form of an annuity for the life of the participant with 
additional temporary annuity payments that cease at the participant's 
assumed Social Security commencement age and that do not exceed the 
participant's estimated Social Security benefit at that age. For this 
purpose, a participant's estimated Social Security benefit is the 
estimated amount of old-age insurance benefits for the participant 
under title II of the Social Security Act (as amended) and the assumed 
Social Security commencement age is an age that is not later than the 
age as of which the participant is entitled to those benefits without 
reduction on account of age.
* * * * *
    (v) * * *
    (H) Example of bifurcation of Social Security level income option--
(1) Facts. The facts are the same as in paragraph (d)(6)(ii)(A) of this 
section (Example of Social Security level income option), except that 
Plan A is amended to provide for implicit bifurcation of a distribution 
paid in the form of a Social Security level income option, as described 
in paragraph (d)(7)(ii)(C) of this section. Thus, under the plan 
amendment, a distribution in the form of a Social Security level income 
option is bifurcated into a temporary annuity portion that ceases at 
the participant's assumed Social Security commencement age and a life 
annuity portion.
    (2) Analysis of bifurcation requirements. If the requirements of 
paragraph (d)(7)(ii)(C) of this section are satisfied, then the 
temporary annuity portion of the Social Security level income option 
satisfies the minimum present value rules of section 417(e)(3) and this 
paragraph (d). In order to satisfy paragraph (d)(7)(ii)(C) of this 
section, there are two requirements that must be satisfied. First, the 
portion of the participant's accrued benefit that is not paid in the 
form of the temporary annuity must be no less than the excess of the 
participant's total accrued benefit over the annuity that is 
actuarially equivalent to the temporary annuity (determined using the 
applicable interest and mortality rates under section 417(e)(3)), both 
expressed in the normal form of benefit commencing at normal retirement 
age (or at the current date, if later). Second, the portion of the 
participant's immediate annuity that is not paid in the form of the 
temporary annuity must be no less than the excess of the participant's 
total immediate annuity over the immediate annuity that is actuarially 
equivalent to the temporary annuity (determined using the applicable 
interest and mortality rates under section 417(e)(3)), both expressed 
in the form of benefit in which the accrued benefit is expressed but 
commencing at the current age.
    (3) Analysis of minimum portion of accrued benefit payable as 
lifetime annuity. A temporary annuity that is payable from age 60 to 65 
in the amount of $1,000 per month is actuarially equivalent, determined 
using the applicable interest rate and applicable mortality table under 
section 417(e)(3), to a straight life annuity of $441.33 per month 
payable at normal retirement age. Therefore, under the amendment, the 
portion of Participant R's accrued benefit that is not paid in the form 
of that temporary annuity must be no less than $1,558.67 per month 
payable as a straight life annuity at normal retirement age ($2,000-
$441.33). Because the portion of the accrued benefit that is not being 
paid in the form of the temporary annuity determined without regard to 
the amendment is $1,455.08 (the lifetime annuity of $945.80, divided by 
the early retirement factor of .65), the amendment increases that 
portion of the accrued benefit to $1,558.67, and the associated early 
retirement benefit commencing at age 60 is $1,013.14 ($1,558.67 x 
0.65).
    (4) Analysis of minimum portion of immediate benefit payable as 
lifetime annuity. A temporary annuity that is payable from age 60 to 65 
in the amount of $1,000 per month is actuarially equivalent, determined 
using the applicable interest rate and applicable mortality table under 
section 417(e)(3), to a straight life annuity of $306.20 per month 
commencing at age 60. Therefore, under the amendment, the portion of 
the participant's immediate benefit that is not paid in the form of 
that temporary annuity must be no less than $993.80 ($1,300-$306.20). 
Because this minimum amount of immediate annuity is less than the 
otherwise calculated early retirement benefit at age 60 of $1,013.14, 
the amendment does not increase the immediate annuity above that 
amount.
    (5) Conclusion. Because the portion of the benefit under the Social 
Security level income option that is not paid in the form of a 
temporary annuity satisfies the requirements of paragraph (d)(7)(ii)(C) 
of this section, the plan is permitted under paragraph (d)(7)(iii)(A) 
of this section to treat the temporary annuity and the remaining 
portion of the benefit as separate distribution options for purposes of 
this paragraph (d). Under paragraph (d)(7)(ii)(C) of this section, the 
temporary annuity portion of the Social Security level income option is 
treated as satisfying the minimum present value requirements of section 
417(e) and this paragraph (d). Because the lifetime annuity portion of 
the Social Security level income option is non-decreasing during the 
lifetime of the participant, that portion is described in paragraph 
(d)(6) of this section and is

[[Page 3562]]

therefore excepted from the requirements of section 417(e)(3). Thus, 
under the amendment, the combined payments payable to Participant R 
under the Social Security level income option of $2,013.14 per month 
until age 65 and $1,013.14 per month thereafter satisfy the 
requirements of section 417(e)(3) and this paragraph (d).
    (8) * * *
    (vi) Applicability date for provisions reflecting PPA '06 updates 
and other rules. Paragraphs (d)(1) through (4) of this section apply to 
distributions with annuity starting dates occurring on or after October 
1, 2024. For earlier distributions, the rules of Sec.  1.417(e)-1(d) as 
set forth in 26 CFR part 1, revised as of April 1, 2023, apply, except 
that taxpayers may instead apply the rules of paragraphs (d)(1) through 
(4) of this section.
    (9) Relationship with section 411(d)(6). A plan amendment that 
changes the interest rate or the mortality assumptions used for the 
purposes described in paragraph (d)(1) of this section (including a 
plan amendment that changes the time for determining those assumptions) 
is generally subject to section 411(d)(6). However, for certain 
exceptions to the rule in the preceding sentence, see paragraph 
(d)(7)(iv) of this section (with respect to a plan amendment providing 
for bifurcation that was adopted before December 31, 2017), Sec.  
1.411(d)-3(a)(4) (regarding changes in lookback months and stability 
periods for mortality table and interest rate), Sec.  1.411(d)-4, Q&A-
2(b)(2)(v) (with respect to plan amendments relating to involuntary 
distributions), and section 1107(a)(2) of the Pension Protection Act of 
2006, Public Law 109-280, 120 Stat. 780 (PPA '06) (with respect to 
certain plan amendments that were made pursuant to a change to the 
Internal Revenue Code made by PPA '06 or pursuant to regulations issued 
thereunder).
* * * * *

Douglas W. O'Donnell,
Deputy Commissioner for Services and Enforcement.
    Approved: December 27, 2023.
Lily Batchelder,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2024-00978 Filed 1-18-24; 8:45 am]
BILLING CODE 4830-01-P