Institute Comments on Proposed Pension Plan Benefit Rules

Washington, DC, June 28, 2000 - The Institute filed a comment letter addressing the Internal Revenue Service's proposed section 411(d)(6) regulations. These proposed regulations would provide special rules under section 411(d)(6) to permit (1) the amendment of a defined contribution plan to eliminate forms of distribution offered under the plan, (2) certain transfers between defined contribution plans that are not currently permitted under the regulations, and (3) the modification of certain rights to in-kind distributions. The comment letter reiterates points from a previous comment letter.

The Institute comment letter requests that the IRS modify its proposal so that plans eliminating optional forms of distribution need only offer a lump-sum distribution option. Alternatively, the Institute recommends that plans eliminating distribution options be required to provide only a lump-sum distribution and one extended form of distribution as options, regardless of whether that extended form of distribution had been available in the plan. Such a rule would enable a plan sponsor to select an extended form of distribution that best suits its current workforce. The Institute also suggests that, at a minimum, the IRS exempt plans involved in mergers, plan sponsors using a prototype document and prototype sponsors from the requirement that the extended distribution form be one that was previously offered in the plan. The Institute also recommends that plans of small businesses be wholly exempt from any requirement to retain any extended distribution form.

Responding to questions raised in the IRS proposal, the letter states that it would be unnecessary for the agency to impose special rules, such as phase-in or age-based rules, for participants near retirement age, because, given the availability of a lump-sum distribution, these individuals can replicate any extended form of distribution. Further, such rules would unnecessarily add administrative burdens and delay the implementation of amendments that would simplify plans and provide cost savings beneficial to plans and participants.

With respect to the proposed rules addressing the distribution of in-kind securities, the Institute recommends that the IRS clarify that a plan sponsor need not create a list of participants holding the relevant securities. Finally, the Institute renewed a request made in our previous comment letter, that the IRS expand this guidance to address the elimination of in-service distribution options.