n-17-44.pdf

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Model Amendments to Add Bifurcated Distribution Options to Defined Benefit
Plans

Notice 2017-44

I. Purpose
This notice provides model amendments that a sponsor of a qualified defined benefit
plan may use to amend its plan document to offer bifurcated benefit distribution options
to participants in accordance with final regulations issued under § 417(e) of the Internal
Revenue Code (see T.D. 9783, 2016-39 I.R.B. 396, published in the Federal Register
on September 9, 2016 (81 FR 62359)). Stakeholders have indicated that providing
model amendments would be helpful in light of the changes to the determination letter
program that are set forth in Rev. Proc. 2016-37, 2016-29 I.R.B. 136.
Although a plan sponsor may use the model language in this notice to provide a
bifurcated distribution option to participants in accordance with the final regulations, a
plan that provides for a bifurcated distribution option is not required to include this
specific model language. The sponsor of a plan that currently provides for bifurcated
distributions under plan terms that comply with the provisions of § 1.417(e)-1(d)(7),
relating to either implicit or explicit bifurcation, does not need to amend those plan

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terms. In addition, use of the model language by an employer that has adopted a pre-
approved plan will not cause the plan to fail to be identical to the pre-approved plan.
II. Background
Section 417 provides rules regarding survivor annuity forms of distribution that must
be offered under qualified defined benefit plans. Section 417(e)(3) and § 1.417(e)-
1(d)(2) and (3) specify the applicable mortality table and the applicable interest rate to
be used to determine the minimum present value of a benefit distributed in the form of a
lump sum. These minimum present value requirements apply for purposes of
§ 411(a)(11) and § 417(e)(1), which permit the distribution of a benefit under a plan to a
participant in a lump sum without the consent of the participant or the participant’s
spouse if the present value of the benefit does not exceed $5,000. The minimum
present value requirements also apply when determining the dollar amount of a lump
sum or other accelerated form of distribution elected by a participant.
Under § 1.417(e)-1(d)(6), an exception from the minimum present value
requirements of § 417(e)(3) applies to a distribution paid in the form of an annuity that
does not decrease during the life of the participant (other than specified permitted
decreases). If an optional form of benefit is eligible for this exception, the requirement
to use the § 417(e)(3) actuarial assumptions to determine the amount of the benefit
payable in the optional form does not apply, and the actuarial assumptions that are
used for this purpose must instead satisfy the requirements of § 411(a) that they not
result in an impermissible forfeiture of the accrued benefit. See § 1.411(a)-4T(a).

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To facilitate the payment of benefits partly in the form of an annuity and partly as a
single sum (or other accelerated form), the Department of the Treasury and the Internal
Revenue Service (IRS) amended the regulations under § 417(e) to permit plans to
simplify the calculation of the amount of certain optional forms of benefit. The change
was made to encourage sponsors of plans that include single sum distribution options to
offer participants the additional option to bifurcate their benefits in order to receive a
portion in an annuity form (providing financial protection against unexpected longevity)
and the remainder in an accelerated form (providing increased liquidity during
retirement).
Section 1.417(e)-1(d)(7) provides rules under which the participant’s accrued benefit
may be “bifurcated” (into two or more parts), so that the minimum present value
requirements of § 417(e)(3) apply only to the portion of the participant’s accrued benefit
that is paid in the accelerated form. Section 1.417(e)-1(d)(7) applies to distributions
with annuity starting dates in plan years beginning on or after January 1, 2017, or, if the
taxpayer elects, to earlier periods.
Section 1.417(e)-1(d)(7)(ii)(A) and (B) provides two acceptable bifurcation methods
that a plan sponsor may choose to include in plan terms. Under the explicit bifurcation
method, a plan permits a participant to elect to divide his or her accrued benefit into two
or more portions, and the minimum present value rules of § 417(e)(3) are applied
separately to each portion of the accrued benefit as if it were the participant’s entire
benefit. Under the implicit bifurcation method, a plan permits a participant to elect the
payment of a single-sum amount if the remaining portion of the participant’s accrued

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benefit is no less than the total accrued benefit reduced by the actuarial equivalent of
the single sum (determined using the actuarial assumptions that apply under
§ 417(e)(3)). Section 1.417(e)-1(d)(7)(iii) sets forth rules of operation for these
bifurcation methods, including rules describing certain circumstances under which the
implicit bifurcation method is not available.
The appendix to this notice provides model language that may be used for each of
these methods, as applicable to the plan. The model language provides for the
payment of the minimum amounts required to be paid in order to comply with the rules
of § 1.417(e)-1(d)(7). A plan may provide for amounts that exceed the minimum
amounts required to be paid pursuant to § 1.417(e)-1(d)(7), but the treatment specified
under section III.A of this notice does not apply to a plan amendment that differs from
the model language in order to provide greater amounts.
Section 411(d)(6) prohibits a plan amendment that decreases a participant’s accrued
benefit. With respect to benefits attributable to service before an amendment, a plan
amendment that effectively eliminates or reduces an early retirement benefit or
retirement-type subsidy or that eliminates an optional form of benefit will be treated as
reducing accrued benefits under § 411(d)(6). However, the last sentence of
§ 411(d)(6)(B) states that the Secretary may, by regulations, provide that § 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). Section 1.417(e)-1(d)(7)(iv) exercises this
authority with respect to certain amendments adopted to implement a bifurcated

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distribution option pursuant to § 1.417(e)-1(d)(7). Pursuant to this authority, § 1.417(e)-
1(d)(7)(iv) provides that § 411(d)(6) is not violated as a result of an amendment to a
plan to implement a bifurcated distribution option if certain conditions are satisfied. This
relief applies with respect to a plan amendment adopted on or before December 31,
2017, if, for plan years beginning before January 1, 2017, the § 417(e)(3) applicable
interest rate and applicable mortality table were used to calculate the amount of a
distribution that was made to settle a portion of the accrued benefit under the plan, and,
pursuant to § 1.417(e)-1(d)(7), the requirements of § 417(e)(3) and § 1.417(e)-1(d) are
not required to be applied to the distribution.
III. Model Amendments
A. Treatment of adoption of model amendments
The model amendments set forth in the Appendix may be used to implement either
of the two methods set forth in § 1.417(e)-1(d)(7) for computing the amount to be paid to
a participant who elects to receive his or her accrued benefit in an optional form of
payment consisting partially of an annuity and partially of a more accelerated form of
payment. Note that the Implicit Bifurcation Amendment may not be used with respect to
distributions for which § 1.417(e)-1(d)(7)(iii)(C) prohibits the use of implicit bifurcation.
Pursuant to this notice:
1. Adoption of a plan amendment incorporating the language in either of the model
amendments in accordance with this notice will not cause a plan to violate the
requirements of § 417(e) and § 1.417(e)-1(d)(7);

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2. Such a plan amendment that is adopted on or before December 31, 2017, is
eligible for the limited relief from the application of the anti-cutback provisions of
§ 411(d)(6) provided under § 1.417(e)-1(d)(7)(iv); and
3. In the case of a pre-approved plan, if one of these model amendments is
adopted by an adopting employer rather than by the
sponsor/practitioner/provider, the adoption of the amendment will not cause the
plan to fail to be identical to the pre-approved plan (see section 8.03(2) of Rev.
Proc. 2017-41, 2017-29 I.R.B. 92, 108-109, or section 19.03(4)(c) of Rev. Proc.
2015-36, 2015-27 I.R.B. 20, 39, as applicable).
B. Applicable conditions
The treatment described in section III.A of this notice applies only if the following
conditions are satisfied:
1. The terms of the model amendment are not modified, except as otherwise
permitted in section III.C of this notice;
2. The plan is operated in accordance with the amendment from and after the
effective date of the amendment; and
3. In accordance with § 1.417(e)-1(d)(7)(iii)(D), if a plan has an early retirement
benefit, a retirement-type subsidy, an optional form of benefit, or an ancillary
benefit that applies only to a portion of a participant’s accrued benefit, and the
plan provides for a distribution of some (but not all) of the participant’s accrued
benefit, the plan specifies the portion of the participant’s total accrued benefit that
is paid by that partial distribution.

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C. Permitted modifications to the model amendments
A plan sponsor may modify the language of a model amendment without affecting
the treatment described in section III.A to conform the language of the model
amendment to the plan’s terminology or organization or to satisfy the condition set forth
in section III.B.3 of this notice, provided that the modifications do not alter the meaning
of any of the provisions of the model amendment. In addition, in the case of a pre-
approved plan, some portions of the model amendment may be included in the basic
plan document, and others may be included in the adoption agreement, as appropriate.
D. Permitted plan designs using the model amendments
Plan sponsors may limit the extent to which bifurcation is available with respect to a
participant’s accrued benefit, specify the number of forms of distribution among which
an accrued benefit may be bifurcated, or limit the combinations of forms that are
available for this purpose. The following illustrates some of the ways in which plan
terms may limit the bifurcation of a participant’s accrued benefit:
 A participant who elects to bifurcate his or her accrued benefit may divide the
benefit between no more than two distribution forms.
 Bifurcation may be available only for specified percentage divisions of the
accrued benefit that are set forth in the plan. For example, a plan could provide
that the only permitted bifurcations are a 50/50 or a 75/25 division.
 Bifurcation may be available only between the portion of an accrued benefit
earned before a specified date and the portion of an accrued benefit earned on
and after that date.

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 A participant may elect to bifurcate his or her accrued benefit only into a lump
sum distribution and an annuity (and the amount permitted to be paid as a lump
sum may be capped at a specified dollar amount or a specified percentage of the
participant’s accrued benefit).
The second and third paragraphs of the model amendment for the explicit bifurcation
method, and the third paragraph of the model amendment for the implicit bifurcation
method, set out optional provisions that may be included in a plan amendment to
implement these limitations.
Drafting Information
The principal authors of this notice are Diane S. Bloom and Linda S. F. Marshall of
the Office of Associate Chief Counsel (Tax Exempt and Government Entities). Ms.
Bloom and Ms. Marshall can be reached at (202) 317-6700 (not a toll-free number).

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Appendix

Model Amendments for a Defined Benefit Plan that Satisfy § 417(e)(3) of the
Internal Revenue Code with Respect to Bifurcated Distribution Options.

Instructions: These model amendments set forth language that may be added to a
plan in order for the plan to offer bifurcated optional forms of benefit determined under
one of the two bifurcation methods described in § 1.417(e)-1(d)(7): (1) the explicit
bifurcation method or (2) the implicit bifurcation method. Consistent with the
requirements of § 1.417(e)-1(d)(7)(iii)(C), the model Implicit Bifurcation Method
amendment may not be used in any case described in that paragraph.

Explicit Bifurcation Method

Effective for annuity starting dates on or after ________ [insert date], if a
participant so elects, the participant’s accrued benefit will be divided and
distributed as described below:

A participant may elect to divide his or her accrued benefit to the following extent:
_______________________________________
[describe the permissible divisions of the accrued benefit].

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A participant may elect a combination of distribution options for the divided
portions of his or her accrued benefit to the following extent:
________________________________
[describe available distribution options and designate any limit on the distribution
options that may be combined for an accrued benefit that is bifurcated].

If a participant elects to divide his or her accrued benefit, the amount of the
distribution payable with respect to each specified portion of the accrued benefit
is determined in accordance with the method for calculating the amount of a
distribution payable in the optional form elected for that portion as if that portion
were the participant’s entire accrued benefit.

Implicit Bifurcation Method

Effective for annuity starting dates on or after ________ [insert date], if a
participant so elects, the participant will receive a portion of his or her accrued
benefit in the form of a single-sum payment as described below. For any
participant who so elects, the remainder of the participant’s accrued benefit not
payable in the form of a single-sum payment, expressed in the form of ________
[insert plan’s normal form of benefit] commencing when the participant attains
normal retirement age (or at the current date, if later) will be equal to the excess
of:

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(1) The participant’s total accrued benefit expressed in that form; over

(2) The annuity payable in that form that is actuarially equivalent to the
single-sum payment, determined using the applicable interest rate under
section 1.417(e)-1(d)(2) and the applicable mortality table under section
1.417(e)-1(d)(3).

A participant may elect to receive as a single-sum payment the following amount:
___________________________________________
[describe (as a dollar figure or as a formula) the amount that may be distributed
as a single-sum payment].

A participant who elects to receive a single-sum payment pursuant to this
[section] may elect to receive the remainder of his or her accrued benefit in any
of the following forms of payment: ____________________________________
[describe available distribution options and any limit on the distribution options
under which the remainder of the participant’s benefit may be paid].

If a participant elects to receive a portion of his or her accrued benefit in the form
of a single-sum payment, then the amount of the distribution payable with respect
to the remainder of the benefit is determined in accordance with the method for

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calculating the amount of a distribution payable in the optional form elected for
that remainder as if that remainder were the participant’s entire accrued benefit.