IRS written determination 201434028

Private letter rulings and published taxpayer determination letters. Native document type is retained separately; a determination letter is not labeled a private letter ruling. These taxpayer-specific releases cannot be used or cited as precedent under 26 USC 6110(k)(3); applicability and current legal force are not independently certified. Keep repeated UILC subjects attached to one actual numbered document.

TAX EXEMPT AND
GOVEF~NMENT ENTITIES
DIVISION
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224
MAR 0 6 2014
Uniform Issue List: 401.06-00 Required Distributions
401.06-01 In General
XX XXX
XX XXX
xxxxx
XXX XX
xxxxx
Legend:
Company =
Plan
=
Dear XXXXX:
XXX XX
XXX XX
201434028
This letter is in response to your letter dated September 26, 2012, as
supplemented by correspondence dated November
1, 2012, in which you
request a Private Letter Ruling that the minimum distribution requirement of
section
401 (a)(9) of the Internal Revenue Code ("Code") would not be violated if
the Company amended Plan to offer a lump sum payment option, during a limited
window period, to certain participants and beneficiaries under the Plan for whom
annuity payments have already begun. Additionally you request that the above
referenced amendment
will not trigger excise tax under section 497 4 of the
Code.
The following facts and representations have been submitted under penalty
of
perjury in support of the ruling requested:
FACTS
Company, the taxpayer, is a global technology company. It is the sponsor of
Plan, which is intended to be a tax-qualified, defined benefit plan, having
received a favorable determination letter most recently on November
9, 2011.
The Plan provides, for employees hired before June
1, 2002, a traditional

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retirement benefit based on years of service and compensation. Benefits
accrued by
employees hired after June
1, 2002, are based on a cash balance
benefit formula.
1
A participant in the Plan who is married or has a domestic partner beneficiary
may elect to receive his or her traditional retirement benefit
in the form of a 50%,
75%,
or 100% joint and survivor annuity, or as a single life annuity with the
consent of the participant's spouse, if any. A participant
in the Plan who is not
married and does not have a domestic partner beneficiary may elect to receive
his
or her traditional retirement benefit as a single life annuity. A participant in the
Plan may elect to receive his or her cash balance benefit
in the form of a lump
sum payout, a single life annuity, or a 50%, 75%, or 100% joint and survivor
annuity with a beneficiary of the participant's choosing. A married participant
must have spousal consent to receive his or her cash balance benefit as a lump
sum payout or a single life annuity.
Company represents that its management and investors are focusing their
attention on the size,
volatility and funded status of the Plan's liability. The
Company further represents that the size of the Plan's pension obligations are
out of line with those sponsored by other similar companies. The volatility of the
Plan's funded status, arising from fluctuations
in asset returns and interest rates,
requires a significant commitment of Company's senior management's time and
resources. Company is concerned that this
volatility could also produce
requirements for future contributions that absorb cash flow needed for
Company's business investments.
Accordingly, Company has commenced a
multi-phase initiative to reduce the size and volatility of the Plan's liability and to
stabilize the Plan's funded status.
As part of this initiative, Company proposes to amend the Plan to offer, during a
limited period of time, a one-time lump sum payment option to certain
participants and beneficiaries who are currently receiving benefits ("Eligible
Annuitants").
2
Those married Eligible Annuitants will also be given an opportunity
to elect to·receive their remaining annuity payments either as a 50% qualified
joint and survivor annuity, a 75%
~ualified optional survivor annuity, or a single
life
annuity, with spousal consent.
Under the amendment, the Eligible Annuitants would have a specified limited
window period of no
less
than 60 days and no more than
90
days during which
they could elect to receive what the Company represents is the actuarial present
value of their remaining benefits under the Plan at the time of such election in the
1
The Plan is now closed to new participants and all benefit accruals have been frozen.
2
Eligible Annuitants for this purpose will include all participants and beneficiaries in pay status, other than
those who Company represents fall into an objectively-defined, nondiscriminatory category
of participants
and beneficiaries with respect to whom annuity settlements are deemed to be impractical
or not in the
interests
of sound benefit administration.
3
Spousal consent must include, where applicable, both the current spouse and a former spouse if the
annuitant has remarried since the annuity starting date.

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form of a single lump payment. Eligible Annuitants who are married would be
able to elect to receive, in lieu of their current annuity, the actuarial present value
of their remaining accrued benefits either
in a qualified joint and survivor annuity,
a qualified optional survivor annuity
or an immediate lump sum payment. Eligible
Annuitants who take no action within the Annuity Settlement Window will
continue to receive their remaining annuity payments
in their present distribution
form. The Company represents that
Eligible Annuitants
that
elect a new
distribution option
will be considered to have a new annuity starting date as of the
first day of the month
in which their new benefit is payable.
Company represents that the Plan currently is not subject to any restrictions on
benefit accruals, amendments increasing benefit liabilities, or distributions under
section 436 of the Code.
In addition, the Company represents that the
amendment
will not change the ability of Eligible Annuitants to elect during the
Annuity
Settlement Window to receive qualified joint and survivor annuities in
accordance with sections
401 (a)(11) and 417 of the Code.
Based on the facts and representations stated above, Company requests a ruling
that the minimum distribution requirements of section
401 (a)(9) of the Code
would not be violated if the Company amended the Plan to implement the
Annuity
Settlement Window with respect to Eligible Annuitants. Additionally,
Company requests a ruling that the above referenced amendment will not trigger
an excise tax
under section 4974 of the Code.
APPLICABLE LAW
Section
401 (a)(9) of the Code and the regulations thereunder ("Regulations")
provide rules relating to required minimum distributions from qualified plans.
Section
401 (a)(9) of the Code was enacted to ensure that amounts contributed to
qualified retirement plans were used for retirement by requiring that retirement
payments begin no later that a certain date, with no less than a certain amount
being distributed each year of retirement. The
legislative history of the original
version of section
401 (a)(9) of the Code in 1962 stated that its purpose is in
"preventing lifetime accumulations which might escape income taxation
altogether." (See: 108 Cong. Rev 18755, 18756 (1962) (statement of Sen.
Smathers).
In general, Section
401 (a)(9)(A) of the Code states that a trust shall not
constitute a
qualified trust under this subsection unless the plan provides the
entire interest of each
employee-
(i) will be distributed to such employee not later than the required
beginning date, or
(ii) will be distributed, beginning not later than the required beginning
date,
in accordance with regulations over the life of such employee

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201434028
or over the lives of such employee and a designated beneficiary (or
over a period not extending beyond the life expectancy of such
employee or the life expectancy of such employee and a
designated beneficiary).
Section
401 (a)(11) of the Code generally provides that a defined benefit plan will
not be considered a qualified plan unless vested benefits, with respect to a
married participant who dies before the annuity starting date, are payable in the
form of a qualified preretirement survivor annuity, and with respect to a married
participant who dies after the annuity starting date, a qualified joint and survivor
annuity.
Section
402(c) of the Code provides rules applicable to rollovers from exempt
trusts. Generally, eligible rollover distributions, as defined in paragraph (4) of
that-section, are not includable
in gross income if such distributions are
transferred to individual retirement accounts or individual retirement annuities
("IRAs"). In relevant part, paragraph (4) provides that an eligible rollover
distribution is the balance to the credit of an employee
in a qualified trust other
than amounts required to be distributed under section
401 (a)(9).
Section 415(a)(1 )(A) of the Code provides that a trust which is a part of a pension
plan will not constitute a qualified trust if the pension plan provides for the
payment of benefits which exceed the limitation of section 415(b). Section
415(b)(2)(8) of the Code generally provides that if the benefit under a defined
benefit plan is payable
in any form other than a straight life annuity, the
determination as to whether the section 415(b) limit has been satisfied shall be
made by adjusting the benefit so that it is equivalent to a straight life annuity.
Section 417(a) of the Code provides that a plan meets the requirements of
section
401 (a)(11) if, among other requirements, each participant may elect
during the applicable election period to waive the qualified joint and survivor
annuity form of benefit or the qualified preretirement survivor annuity form of
benefit (or both). Section 417(a)(6) of the Code defines the applicable election
period as meaning,
in part, in the case of an election to waive the qualified joint
and survivor annuity form of benefit, the
180-day period ending on the annuity
starting date.
Section 4974 of the Code provides that if the amount distributed during the
taxable year of the payee under any qualified retirement plan or any eligible
deferred compensation plan is less than the minimum required distribution
(pursuant to sections
401 (a)(9), 403(b)(1 0), 408(b)(3), of 457(d)(2) of the Code)
for such taxable year, there is hereby imposed a tax equal to 50 percent of the
amount by which such minimum required distribution exceeds the actual amount
distributed during the taxable year. This tax
shall be paid by the payee.

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Treas. Reg. § 1.401 (a)(9)-6, Q&A-1 (a), in pertinent part, states that in order to
satisfy section
401 (a)(9) of the Code, distributions of the employee's entire
interest under a defined benefit pension plan must be paid
in the form of periodic
annuity payments for the employee's life (or the joint lives of the employee and
beneficiary)
or over a period certain that does not exceed the maximum length of
the period certain determined in accordance with A-3 of this section. Once
payments have commenced over a period, the period may only be changed
in
accordance with A-13 or A-14 of this section. Except as otherwise provided in
this section (such as permitted increases described in A-14 of this section),
all
payments (whether paid over an employee's life, joint lives, or a period certain)
also must be nonincreasing.
Treas.
Reg.§ 1.401(a)(9)-6, Q & A-1{d) generally provides that, in the case of a
single sum distribution, the minimum required distribution may be determined
by
either (1) treating the single sum distribution as the employee's account balance
for the year or (2) expressing the employee's benefit as an annuity that would
satisfy that section with an annuity starting date as of the first day of the
distribution calendar year for which the required minimum distribution is being
determined, and treating one year of annuity payments as the required minimum
distribution for that year, and not eligible for rollover.
Treas. Reg. § 1.401 (a)(9)-6, Q&A-13(a) states that an annuity payment period
may be changed
in accordance with the provisions set forth in paragraph (b) of
this A-13
or in association with an annuity payment increase described in A-14 of
this section.
Treas. Reg. §
1.401 (a)(9)-6, Q&A-14(a) states that except as otherwise provided
in this section, all annuity payments (whether paid over an employee's life, joint
lives,
or a period certain) must be non-increasing or increase only in accordance
with one or more of the
following -
(1) With an
annual percentage increase that does not exceed the
percentage increase in an
eligible cost-of-living index as
defined
in
paragraph (b) of this A-14 for a 12-month period ending in the year during
which the increase occurs or the prior year;
(2) With a percentage increase that occurs at specified times (e.g., at
specified ages) and does not exceed the cumulative total of annual
percentage increases
in an eligible cost-of-living index as defined in
paragraph (b) of this A-14 since the annuity starting date, or if later, the
date of the most recent percentage increase. However, in cases providing
such a cumulative increase, an actuarial increase may not be provided to
reflect the fact that increases were not provided
in the interim years;
(3)
To the extent of the reduction in the amount of the employee's
payments to provide for a survivor benefit, but only if there is no longer a

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survivor benefit because the beneficiary whose life was being used to
determine the period described in section
401 (a)(9)(A)(ii) over which
payments were being made dies or is no longer the employee's
beneficiary pursuant to a qualified domestic relations order within the
meaning of section 414(p);
(4)
To pay increased benefits that result from a plan amendment;
(5) To allow a beneficiary to convert the survivor portion of a joint and
survivor annuity into a single sum distribution upon the employee's death;
or
(6) To the extent increases are permitted in accordance with paragraph (c)
or (d) of this A-14.
Treas. Reg.
§ 1.415(b}-(1 )(b)(iii) provides that if a participant will have
distributions commencing at more than one annuity starting date, the limitations
of section 415
of the Code must be satisfied as of each of the annuity starting
dates, taking into account the benefits that have been provided at
all
of the
annuity starting dates.
ANALYSIS
Section
401 (a) of the Code provides a tax deferral for retirement benefits
accumulated in a qualified pension plan. Section
401 (a)(9) of the Code and the
Regulations ensure that these tax-deferred accumulations are, in fact, used
during retirement and do not escape taxation.
Treas. Reg.
§ 1.401 (a)(9)-6 sets forth the rules governing required distributions
from defined benefit
plans and annuity contracts. Treas. Reg.
§ 1.401 (a)(9)-6,
Q&A-13(a) states that an annuity payment period may be changed in association
with an annuity payment increase described in A-14 of this section. Treas. Reg.
§ 1.401 (a)(9)-6, Q&A-14(a)(4) provides that annuity payments from a qualified
plan may increase if the payment of increased benefits results from a plan
amendment.
Company's proposed amendment to
Plan adds a window period of no more than
60 days and no more than 90 days, to receive, in lieu of their current annuity,
either a qualified joint and survivor annuity, the qualified optional survivor annuity,
or an immediate lump sum payment. Those Eligible Annuitants who make an
election during the limited window period will be subject to applicable spousal
consent
4
.
4
Spousal consent must include, where applicable, both the current spouse and a former spouse
if the annuitant has remarried since the annuity starting date.

7
281434028
With respect to the first ruling request, the proposed amendment will result in a
change
in the annuity payment period. The annuity payment period will be
changed
in association with the payment of increased benefits as a result of the
addition of the lump sum option.
In addition, Eligible Annuitants who wish to
change their current distribution option will be considered to have a new annuity
starting date as
of the first date of the month
in which their new benefit is
payable. Because the ability to select a lump sum option will only be available
during a limited window, the increased benefit payments will result from the
proposed plan amendment and, as such, are a permitted benefit increase under
Treas.
Reg.§ 1.401(a)(9)-6, Q&A-14(a)(4).
With respect to the second ruling request, as stated above, under the limited
window period, Eligible Annuitants will be given the opportunity to elect a single
lump-sum
payment
in lieu of all future remaining payments. Company has
represented such lump-sum payments will be distributed to electing participants
in a manner that is
compliant with requirements of sections
401 (a}(9}, 401 (a}(31 },
and 402(c} of the Code. Accordingly, to the extent that any amounts transferred
from Plan to the Eligible Annuitant's IRA (or other eligible retirement plan) as part
of the implementation of the limited window period do not include amounts
required to be distributed under section
401 (a)(9) (and such amounts required to
be distributed under section
401 (a)(9) to the electing participant are distributed},
implementation of the relevant amendment will not trigger excise tax under
section 4974.
Finally,
in order for a plan to remain qualified under section 401 (a) of the Code,
the calculation of the value of the benefit elected under the lump sum window
option must
comply with the requirements of section 417(e} and the regulations
thereunder. Under section 6.03 of Revenue Procedure 2014-4, subject to certain
exceptions, the IRS generally does not issue letter rulings on matters involving
qualification issues under section
401 through 420 of the Code. Qualification
matters are generally handled by the Employee Plans Determination letter
program
as provided in Revenue Procedure 2014-6. Accordingly, we have not
considered, among other matters, whether the lump sum window benefits comply
with the requirements of section 417(e) and the regulations thereunder with
respect to the amount of the distribution and minimum present value requirement
that is applied based on the present value of the normal retirement benefit.
Instead, this letter ruling is based on your representation that the lump sum
window option satisfies section 417(e} of the Code and section 1.417(e}-1 of the
regulations.
RULING
Therefore, in this circumstance, with respect to the first ruling request, the
minimum distribution requirements of section
401 (a)(9) of the Code would not be
violated if the Company amended Plan to implement the Annuity Settlement
Window with respect to Eligible Annuitants. With respect to the second ruling

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request, the implementation of the Annuity Settlement Window will not, in itself,
trigger excise tax under section 497
4.
Except as specifically ruled above, no opinion is expressed as to the federal tax
consequences of the transaction described above under any other provision of
the Code, including sections
401 (a)(4), 411, 415, 417 and 436 or of Title I of
ERISA. No opinion is expressed regarding the qualification of the Plan.
In addition, no opinion is expressed on whether the method for valuing benefits
under the lump sum window option satisfies the
requirements of section 417{e)
and the regulations thereunder.
This letter is directed only to the taxpayer requesting it. Section
611 O(k)(3) of the
Code provides that it may not be used or cited as precedent.
If you wish to inquire about this ruling, please contact
XXXXX at (XXX) XXX-
XXXX. Please address all correspondence to SE:T:EP:RA:T2.
Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose
cc:
xxxxx
XX XXX
XXX XX
XXX XX
XX XXX
xxxxx
xxxxx
XX XXX
xxxxx
xxxxx
Sincerely,
/}y~ i~ ~~
William B. Hulteng, Manager
Employee Plans Technical Group