IRS written determination 201424031

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.

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

WASHINGTON, D.C. 20224

TAX EXEMPT AND

GOVERNMENT ENTITIES

DIVISION

MAR 21 l014
Uniform Issue List: 401.06-00 Required Distributions
401.06-01 In General
xxxxx
xxxxx
xxxxx
xxxxx
XXXXX
Legend:
Company
=
XXXXX
Plan 1
=
XXXXX
Plan
2
=
XXXXX
DearXXXXX:
This is in response to your letter dated September 30, 2013. in which you request a
Private Letter Ruling that the minimum distribution requirements of section
401 (a)(9) of
the Internal Revenue Code ("Code") would not be violated if the Company amended
Plan
1 and Plan 2 to offer a lump sum payment option, during a limited window period,
to certain participants and beneficiaries for whom annuity payments have already
begun.
The following facts and representations have been submitted under penalty
of perjury in
support
of the ruling requested:
FACTS
Company, the taxpayer, is . .
It,
along with its subsidiaries sponsor Plan 1 and Plan 2 (collectively, the "Plans"), which
are intended to be tax-qualified, defined benefit plans, and having received a favorable

Page 2
2Q142 4 031~
determination letter most recently on , and , respectively.
Each Plan covers a significant number of employees and former employees of the
Company, and beneficiaries.
Current payment options under
Plan 1 include a single life annuity, a life annuity-1 0
years certain, a 50%, 75% or 100% jOint and survivor annuity, and a lump sum,
available for all Plan 1 participants beginning . after their earliest
commencement age.
Current payment options under Plan 2 include a single life annuity, a 50%, 75%
or
100% jOint and survivor annuity, and a lump sum for all Plan 2 participants beginning
after their earliest commencement age.
The Company represents that the pension benefit obligations attributable to the Plans
and reported on the Company's financial statements present particular risks. The
Company represents that reducing its pension obligations through the proposed window
program would reduce administrative costs
and limit pension financial and demographic
risk exposure. '
To reduce the impact of the volatility of the large pension obligations, the Company
proposes
to amend both Plans to offer, during a limited period of time, a one-time lump
sum window benefit to certain participants and beneficiaries of the Plans. The window
would be offered to: (1) retired
or terminated participants currently receiving benefit
payments in annuity form under the Plans; and (2) beneficiaries who presently are
receiving benefit payments in annuity form under the Plans ("Eligible Annuitants,,).1
Under the amendment, the Eligible Annuitants would have a specified limited window
period of
no less than 30 days and no more than 90 days during which they could elect
to receive, in lieu of their current annuity, what the Company represents is the actuarial
present value of their expected remaining benefits under the Plans at the time of such
election in the form of a single lump sum payment, or to the extent required by law, a
single life annuity, qualified joint and survivor annuity,
or qualified optional survivor
annuity. Elections by Eligible Annuitants to receive a new distribution option will be
subject to applicable spousal consent.
2
Each Eligible Annuitant would be offered
optional financial counseling provided by what Company represents will be a highly
qualified and reputable financial advisor before making his
or her election decision. 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.
The Company represents that the funding levels of the Plans are sufficient so that the
window programs will not trigger benefit restrictions described in section 436 of the
1 Certain subsets of the otherwise eligible group may be excluded in a nondiscriminatory manner on

account of administrative practicalities or other considerations.

2 Spousal consent must include, where the law requires, both the current spouse and a former spouse if

the annuitant has remarried since the annuity starting date.

201424031'
Page 3
Code.
In addition, the Company represents that the amendment will not change the
ability of Eligible Annuitants to elect during the window period to receive qualified joint
and survivor annuities or qualified optional 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 Plans to offer the proposed window period of not
less than 30 days and not more than 90 days, to participants and beneficiaries for whom
annuity payments have commenced under the Plans.
APPLICABLE LAW
Section
401 (a)(9) of the Code and the regulations thereunder ("Regulations") provide
rules relating to required minimum distributions from quali'fied plans. Section
401 (a)(9)
of the Code was enacted to ensure that the amounts contributed to qualified retirement
plans were used for retirement by requiring that retirement payments begin no later than
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." 108
Congo Rec. 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 that 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 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 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)(B) of the Code

Page 4
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 41S(b) limit
has been satisfied shall be made by adjusting the bene'fit 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.
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-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 re'flect the fact that increases were not provided
in the interim years;

201424031
Page 5
(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 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.
The Company's proposed amendment to the Plans adds a lump sum option
for Eligible
Annuitants under which Eligible Annuitants will have the opportunity to elect, within a
one-time window period of no less than 30 days and no more than 90 days, to receive,
in lieu of their current annuity, a lump sum payment. Elections by Eligible Annuitants to
receive a new distribution option will be subject to applicable spousal consent.
3
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
3 Spousal consent must include, where the law requires, both the current spouse and a former spouse if
the annuitant has remarried since the annuity starting date.

Page 6
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).
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 benefit satisfies
section 417(e) of the Code and section 1.417(e)-1 of the regulations.
RULING
Therefore,
in this circumstance, the minimum distribution requirements of section
401 (a)(9) of the Code would not be violated if the Company amended Plan 1 and
Plan 2 to offer the proposed window period of not less than 30 days and not
more than 90 days to the Plans' participants and beneficiaries for whom annuity
payments have already begun.
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 either 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 who requested
it. Section 611 0(k)(3) of the
Code provides that it may not be used
or cited as precedent.

Page 7
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.
Sincerely,
/}J/dL" I>. ~
William B. Hulteng, Manager,
Employee
Plans Technical Group
Enclosures:
Deleted copy
of ruling letter
Notice of Intention to Disclose
cc:
XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX

XXXXX