[Federal Register: March 24, 2006 (Volume 71, Number 57)]
[Rules and Regulations]
[Page 14798-14804]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr24mr06-5]

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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