For Tax Professionals  
REG-209463-82 April 22, 1998

Required Distributions from Qualified Plans &
Individual Retirement Plans

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [REG-209463-82] RIN 1545-AV82

TITLE: Required Distributions from Qualified Plans and Individual
Retirement Plans

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

SUMMARY: This document contains amendments to the existing proposed
regulations under section 401(a)(9) that make changes to the rules
that apply if a trust is named as a beneficiary of an employee's
benefit under a retirement plan. These proposed regulations will
affect administrators of, participants in, and beneficiaries of
qualified plans, institutions which sponsor and individuals who
administer individual retirement plans, individuals who use
individual retirement plans, simplified employee pensions and SIMPLE
Savings Plans for retirement income and beneficiaries of individual
retirement plans; and employees for whom amounts are contributed to
section 403(b) annuity contracts, custodial accounts, or retirement
income accounts and beneficiaries of such contracts and accounts.

DATES: Written comments and requests for a public hearing must be
received by March 30, 1998.

ADDRESSES: Send submissions to CC:DOM:CORP:R (REG-209463-82), room
5226, Internal Revenue Service, POB 7604, Ben Franklin Station,
Washington, DC 20044. Submissions may be hand delivered between the
hours of 8 a.m. and 5 p.m. to CC:DOM:CORP:R (REG-209463- 82),
Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue
NW., Washington, DC. Alternatively, taxpayers may submit comments
electronically via the Internet by selecting the "Tax Regs" option
on the IRS Home Page, or by submitting comments directly to the IRS
Internet site at
http://www.irs.ustreas.gov/prod/tax_regs/comments.html FOR FURTHER
INFORMATION CONTACT: Thomas Foley at (202) 622-6030 (not a toll-free
number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

The collection of information contained in this notice of proposed
rulemaking has been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act of 1995
(44 U.S.C. 3507(d)). Comments on the collection of information
should be sent to the Office of Management and Budget, Attn: Desk
Officer for the Department of the Treasury, Office of Information
and Regulatory Affairs, Washington, DC 20503, with copies to the
Internal Revenue Service, Attn: IRS Reports Clearance Officer, T:FP,
Washington, DC 20224. Comments on the collection of information
should be received by March 2, 1998. Comments are specifically
requested concerning:

Whether the proposed collection of information is necessary for the
proper performance of the functions of the Internal Revenue Service,
including whether the information will have practical utility;

The accuracy of the estimated burden associated with the proposed
collection of information (see below); How the quality, utility, and
clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collection of
information may be minimized, including through the application of
automated collection techniques or other forms of information
technology; and Estimates of capital or start-up costs and costs of
operation, maintenance, and purchase of services to provide
information.

The collection of information in this proposed regulation is in
Question and Answer D-7 of 1.401(a)(9)-1. This information is
required for a taxpayer who wants to name a trust and treat the
underlying beneficiaries of the trust as designated beneficiaries of
the taxpayer's benefit under a retirement plan or an individual
retirement plan ("IRA"). The taxpayer must provide a copy of the
trust instrument or IRA trustee, custodian, or issuer, or provide a
list of all the beneficiaries of the trust, certify that, to the
best of the taxpayer's knowledge, this list is correct and complete,
and agree to provide a copy of the trust instrument upon demand. In
addition, other related requirements for the beneficiaries of the
trust to be treated as designated beneficiaries must be satisfied.
If the trust instrument is amended at any time in the future, the
taxpayer must, within a reasonable time, provide a copy of each such
amendment, or provide corrected certifications to the extent that
the amendment changes the information previously certified. In
addition, by the end of the ninth month after the death of the
taxpayer, the trustee of the trust must provide a copy of the trust
to the plan administrator or IRA trustee, custodian, or issuer, or
provide a list of all the beneficiaries of the trust, certify that,
to the best of the taxpayer's knowledge, this list is correct and
complete, and agrees to provide a copy of the trust instrument upon
demand. The collection of information is required to obtain a
benefit. The likely respondents are individuals or households.

Estimated total annual reporting hours is 333 hoU.S.
The estimated average burden per respondent is 20 minutes.

The estimated total number of respondents is 1,000.

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

On July 27, 1987, Proposed Regulations (EE-113-82) under sections
401(a)(9), 403(b), 408, and 4974 of the Internal Revenue Code of
1986 were published in the Federal Register (52 FR 28070) Those
proposed regulations provide guidance for complying with the rules
relating to required distributions from qualified plans, individual
retirement plans, and section 403(b) annuity contracts, custodial
accounts, and retirement income accounts.

This document contains amendments to proposed  1.401(a)(9)-1
(hereinafter referred to as the Existing Proposed Regulations) that
was included in EE-113-82. Specifically this document contains
amendments to Q&As D-5 and Q&A D-6 of the Existing Proposed
Regulations which prescribe specific requirements that must be met
when a trust is named as a beneficiary of an employee's benefit
under a plan, and adds a new Q&A D-7 to the Existing Proposed
Regulations. Proposed   1.408-8 and 1.403(b)-2 (also included in
EE-113-82) provide that the provisions of proposed  1.401(a)(9)-1
generally apply to individual retirement plans, and section 403(b)
annuity contracts, custodial accounts, and retirement income
accounts.

Accordingly, these amendments and additions also generally apply to
such plans, contracts, and accounts.

The amendments and additions to the Existing Proposed Regulations in
these proposed regulations are issued in response to comments and
questions received regarding the Existing Proposed Regulations with
respect to section 401(a)(9).

Treasury and the IRS continue to welcome additional comments
concerning the Existing Proposed Regulations and the other sections
of EE-113-82.

As in the case of the Existing Proposed Regulations and the other
sections of EE-113-82, taxpayers may rely on these proposed
regulations for guidance pending the issuance of final regulations.
If, and to the extent, future guidance is more restrictive than the
guidance in these proposed regulations, the future guidance will be
applied without retroactive effect.

Explanation of provisions

Overview

Section 401(a)(9)(A) provides that, in order for a plan to be
qualified under section 401(a), distributions of each employee's
interest in the plan must commence no later than the "required
beginning date" for the employee and must be distributed over a
period not to exceed the joint lives or joint life expectancy of the
employee and the employee's designated beneficiary. Section 401(a)
(9)(B) provides that if distribution does not commence prior to
death in accordance with section 401(a)(9)(A), distributions of the
employee's interest must be made within 5 years of the employee's
death or, generally, commence within one year of the employee's
death and be made over the life or life expectancy of the designated
beneficiary.

Section 401(a)(9)(E) defines the term "designated beneficiary" as an
individual designated as a beneficiary by the employee. The Existing
Proposed Regulations provide that, for purposes of section 401(a)
(9), only individuals may be designated beneficiaries. A beneficiary
who is not an individual, such as the employee's estate, may not be
a designated beneficiary for purposes of determining the minimum
required distribution, but nevertheless may be designated as the
employee's beneficiary under the plan. If a beneficiary who is not
an individual is designated to receive an employee's benefit after
death, the employee is treated as having no designated beneficiary
when determining the required minimum distribution. In that case,
under section 401(a)(9), distributions commencing before death must
be made over the employee's single life or life expectancy and
distributions commencing after death must be made within 5 years of
the employee's death.

However, the Existing Proposed Regulations provide that if a trust
is named as a beneficiary of an employee's benefit under the plan,
the underlying beneficiaries of the trust may be treated as
designated beneficiaries for purposes of section 401(a)(9) if
certain requirements are satisfied. In response to comments, these
proposed regulations modify these trust beneficiary requirements as
explained below by: ! Permitting the designated beneficiary of a
revocable trust to be treated as the designated beneficiary for
purposes of determining the minimum distribution under section
401(a)(9), provided that the trust becomes irrevocable upon the
death of the employee. ! Providing relief from the requirement that
the plan be provided with a copy of the trust document if certain
certification requirements are met.

Irrevocability of trust

The Existing Proposed Regulations generally provide that a trust
must be irrevocable as of the employee's required beginning date in
order for the beneficiaries of the trust to be treated as designated
beneficiaries under the plan for purposes of determining the
distribution period under section 401(a)(9)(A).

Commentators have indicated that most trusts established for estate
planning purposes and designated as the beneficiary of an employee's
plan benefits are revocable instruments prior to the death of the
employee. In response to those comments, these proposed regulations
provide that a trust named as beneficiary of an employee's interest
in a retirement plan be permitted to be revocable while the employee
is alive, provided that it becomes irrevocable, by its terms, upon
the death of the employee. The requirements in the Existing Proposed
Regulations that the trust be valid under state law (or would be but
for the fact that there is no corpus) and that the beneficiaries be
identifiable from the trust instrument are retained.

Information to Plan Administrator

In order to permit the plan administrator to substantiate that the
requirements for treating the beneficiaries of the trust as
designated beneficiaries under the plan are satisfied, the Existing
Proposed Regulations require that a copy of the trust instrument be
provided to the plan administrator by the earlier of the required
beginning date or the date of the employee's death. In response to
comments, this proposed regulation permits an alternative method of
substantiation.

As under the Existing Proposed Regulations, a copy of the trust
instrument may be provided to the plan administrator.

However, because the trust need not be irrevocable, under this
method, the employee must also agree that if the trust instrument is
amended at any time in the future, the employee will, within a
reasonable time, provide a copy of each such amendment.

Alternatively, the employee may provide a list of all of the
beneficiaries of the trust (including contingent beneficiaries) with
a description of the portion to which they are entitled and any
conditions on their entitlement, and certify that, to the best of
the employee's knowledge, this list is correct and complete and that
the other requirements for the beneficiaries of the trust to be
treated as designated beneficiaries are satisfied. Under the second
method, the employee must also agree to provide corrected
certifications to the extent that the amendment changes the
information previously certified. Finally, the employee must agree
to provide a copy of the trust instrument to the plan administrator
upon demand.

In addition, these proposed regulations provide that, if the minimum
required distributions after death are determined by treating the
beneficiaries of the trust as designated beneficiaries, a final
certification as to the beneficiaries of the trust instrument must
be provided to the plan administrator by the end of the ninth month
after the death of the employee.

This rule applies even if a copy of the trust instrument were
provided to the plan administrator before the employee's death.

Alternatively, an updated trust instrument may be provided.

The proposed regulations also provide that a plan will not fail to
satisfy section 401(a)(9) merely because the terms of the actual
trust instrument are inconsistent with the information in the
certifications or trust instruments previously provided to the plan
administrator if the plan administrator reasonably relies on the
information provided in the certifications or trust instruments.
However, the minimum required distributions for years after the year
in which the discrepancy is discovered must be determined based on
the actual terms of the trust instrument.

For those years, the minimum required distribution will be
determined by treating the beneficiaries of the employee as having
been changed in the year in which the year the discrepancy was
discovered to conform to the corrected information and by applying
the change in beneficiary provisions found under the Existing
Proposed Regulations. However, for purposes of determining the
amount of the excise tax under section 4974 (including application
of a waiver, if any, for reasonable error under section 4974), the
minimum required distribution is determined for any year based on
the actual terms of the trust in effect during the year.

Special Analyses

It has been determined that this notice of proposed rulemaking is
not a significant regulatory action as defined in EO 12866.
Therefore, a regulatory assessment is not required.

It also has been determined that section 553(b) of the
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to
these regulations. Moreover, it hereby certified that the
regulations in this document will not have a significant economic
impact on a substantial number of small entities. This certification
is based on the fact that the reporting burden is primarily on the
plan participant to supply the information rather than on the entity
maintaining the retirement plan and the fact that the number of
participants per plan to whom the burden applies is insignificant.
Accordingly, a regulatory flexibility analysis under the Regulatory
Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to
section 7805(f) of the Internal Revenue Code, this notice of
proposed rulemaking will be submitted to the Chief Counsel for
Advocacy of the Small Business Administration for comment on its
impact on small business.

Comments and Requests for a Public Hearing

Before these proposed regulations are adopted as final regulations,
consideration will be given to any written comments (preferably a
signed original and eight (8) copies) or comments transmitted via
Internet that are submitted timely to the IRS.

All comments will be available for public inspection and copying.

A public hearing may be scheduled if requested in writing by a
person that timely submits written comments. If a public hearing is
scheduled, notice of the date, time, and place for the hearing will
be published in the Federal Register.

Drafting Information

The principal author of these regulations is Cheryl Press, Office of
the Associate Chief Counsel (Employee Benefits and Exempt
Organizations), IRS. However, other personnel from the IRS and
Treasury Department participated in their development.

List of Subjects in 26 CFR Part 1 Income taxes, Reporting and
recordkeeping requirements.

Amendments to the Previously Proposed Regulations Accordingly, 26
CFR part 1 is proposed to be amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in
part as follows:

Authority: 26 U.S.C. 7805 ***

Par. 2. Section 1.401(a)(9)-1, as proposed to be added at 52 FR
28075, July 27, 1987, is amended by:

1. Revising Q&A D-5.13

2. Revising Q&A D-6.

3. Adding Q&A D-7 The additions and revisions read as follows:

 1.401(a)(9)-1 Required distributions from trust and plans.

* * * * *

D. Determination of the Designated Beneficiary.

* * * * *

D-5. Q. If a trust is named as a beneficiary of an employee, will
the beneficiaries of the trust with respect to the trust's interest
in the employee's benefit be treated as having been designated as
beneficiaries of the employee under the plan for purposes of
determining the distribution period under section 401(a)(9)(A)(ii)?

A. (a) Pursuant to D-2A of this section, only an individual may be a
designated beneficiary for purposes of determining the distribution
period under section 401(a)(9)(A)(ii). Consequently, a trust itself
may not be the designated beneficiary even though the trust is named
as a beneficiary. However, if the requirements of paragraph (b) of
this D-5 are met, distributions made to the trust will be treated as
paid to the beneficiaries of the trust with respect to the trust's
interest in the employee's benefit, and the beneficiaries of the
trust will be treated as having been designated as beneficiaries of
the employee under the plan for purposes of determining the
distribution period under section 401(a)(9)(A)(ii). If, as of any
date on or after the employee's required beginning date, a trust is
named as a beneficiary of the employee and the requirements in
paragraph (b) of this D-5 are not met, the employee will be treated
as not having a designated beneficiary under the plan for purposes
of section 401(a)(9)(A)(ii). Consequently, for calendar years
beginning after that date, distribution must be made over the
employee's life (or over the period which would have been the
employee's remaining life expectancy determined as if no beneficiary
had been designated as of the employee's required beginning date).

(b) The requirements of this paragraph (b) are met if, as of the
later of the date on which the trust is named as a beneficiary of
the employee, or the employee's required beginning date, and as of
all subsequent periods during which the trust is named as a
beneficiary, the following requirements are met:

(1) The trust is a valid trust under state law, or would be but for
the fact that there is no corpus.

(2) The trust is irrevocable or will, by its terms, become
irrevocable upon the death of the employee.

(3) The beneficiaries of the trust who are beneficiaries with
respect to the trust's interest in the employee's benefit are
identifiable from the trust instrument within the meaning of D-2 of
this section.

(4) The documentation described in D-7 of this section has been
provided to the plan administrator.

(c) In the case of payments to a trust having more than one
beneficiary, see E-5 of this section for the rules for determining
the designated beneficiary whose life expectancy will be used to
determine the distribution period. If the beneficiary of the trust
named as beneficiary is another trust, the beneficiaries of the
other trust will be treated as having been designated as
beneficiaries of the employee under the plan for purposes of
determining the distribution period under section 401(a)(9)(A)(ii),
provided that the requirements of paragraph (b) of this D-5 are
satisfied with respect to such other trust in addition to the trust
named as beneficiary.

D-6. Q. If a trust is named as a beneficiary of an employee, will
the beneficiaries of the trust with respect to the trust's interest
in the employee's benefit be treated as designated beneficiaries
under the plan with respect to the employee for purposes of
determining the distribution period under section 401(a)(9)(B)(iii)
and (iv)?

A. (a) If a trust is named as a beneficiary of an employee and the
requirements of paragraph (b) of D-5 of this section are satisfied
as of the date of the employee's death or, in the case of the
documentation described in D-7 of this section, by the end of the
ninth month beginning after the employee's date of death, then
distributions to the trust for purposes of section 401(a)(9) will be
treated as being paid to the appropriate beneficiary of the trust
with respect to the trust's interest in the employee's benefit, and
all beneficiaries of the trust with respect to the trust's interest
in the employee's benefit will be treated as designated
beneficiaries of the employee under the plan for purposes of
determining the distribution period under section 401(a)(9)(B)(iii)
and (iv). If the beneficiary of the trust named as beneficiary is
another trust, the beneficiaries of the other trust will be treated
as having been designated as beneficiaries of the employee under the
plan for purposes of determining the distribution period under
section 401(a)(9)(B)(iii) and (iv), provided that the requirements
of paragraph (b) of D-5 of this section are satisfied with respect
to such other trust in addition to the trust named as beneficiary.
If a trust is named as a beneficiary of an employee and if the
requirements of paragraph (b) of D-5 of this section are not
satisfied as of the dates specified in the first sentence of this
paragraph, the employee will be treated as not having a designated
beneficiary under the plan. Consequently, distribution must be made
in accordance with the five-year rule in section 401(a)(9)(B)(ii).

(b) The rules of D-5 of this section and this D-6 also apply for
purposes of applying the provisions of section 401(a)(9)(B)(iv)(II)
if a trust is named as a beneficiary of the employee's surviving
spouse. In the case of payments to a trust having more than one
beneficiary, see E-5 of this section for the rules for determining
the designated beneficiary whose life expectancy will be used to
determine the distribution period.

D-7. Q. If a trust is named as a beneficiary of an employee, what
documentation must be provided to the plan administrator so that the
beneficiaries of the trust who are beneficiaries with respect to the
trust's interest in the employee's benefit are identifiable to the
plan administrator?

A. (a) Required distributions commencing before death. In order to
satisfy the requirement of paragraph (b)(4) of D-5 of this section
for distributions required under section 401(a)(9) to commence
before the death of an employee, the employee must comply with
either paragraph (a)(1) or (2) of this D-7:

(1) The employee provides to the plan administrator a copy of the
trust instrument and agrees that if the trust instrument is amended
at any time in the future, the employee will, within a reasonable
time, provide to the plan administrator a copy of each such
amendment.

(2) The employee--

(i) Provides to the plan administrator a list of all of the
beneficiaries of the trust (including contingent and remainderman
beneficiaries with a description of the conditions on their
entitlement);

(ii) Certifies that, to the best of the employee's knowledge, this
list is correct and complete and that the requirements of paragraphs
(b)(1), (2), and (3) of D-5 of this section are satisfied;

(iii) Agrees to provide corrected certifications to the extent that
an amendment changes any information previously certified; and

(iv) Agrees to provide a copy of the trust instrument to the plan
administrator upon demand.

(b) Required distributions after death. In order to satisfy the
documentation requirement of this D-7 for required distributions
after death, by the end of the ninth month beginning after the death
of the employee, the trustee of the trust must either

(1) Provide the plan administrator with a final list of all of the
beneficiaries of the trust (including contingent and remainderman
beneficiaries with a description of the conditions on their
entitlement) as of the date of death; certify that, to the best of
the trustee's knowledge, this list is correct and complete and that
the requirements of paragraph (b)(1), (2), and

(3) of D-5 of this section are satisfied as of the date of death;
and agree to provide a copy of the trust instrument to the plan
administrator upon demand; or

(2) Provide the plan administrator with a copy of the actual trust
document for the trust that is named as a beneficiary of the
employee under the plan as of the employee's date of death.

(c) Relief for discrepancy between trust instrument and employee
certifications or earlier trust instruments. (1) If required
distributions are determined based on the information provided to
the plan administrator in certifications or trust instruments
described in paragraph (a)(1), (a)(2) or (b) of this D-7, a plan
will not fail to satisfy section 401(a)(9) merely because the actual
terms of the trust instrument are inconsistent with the information
in those certifications or trust instruments previously provided to
the plan administrator, but only if the plan administrator
reasonably relied on the information provided and the minimum
required distributions for calendar years after the calendar year in
which the discrepancy is discovered are determined based on the
actual terms of the trust instrument.

For purposes of determining whether the plan satisfies section
401(a)(9) for calendar years after the calendar year in which the
discrepancy is discovered, if the actual beneficiaries under the
trust instrument are different from the beneficiaries previously
certified or listed in the trust instrument previously provided to
the plan administrator, or the trust instrument specifying the
actual beneficiaries does not satisfy the other requirements of
paragraph (b) of D-5 of this section, the minimum required
distribution will be determined by treating the beneficiaries of the
employee as having been changed in the calendar year in which the
discrepancy was discovered to conform to the corrected information
and by applying the change in beneficiary provisions of E-5 of this
section.

(2) For purposes of determining the amount of the excise tax under
section 4974, the minimum required distribution is determined for
any year based on the actual terms of the trust in effect during the
year.

* * * * *

Michael P. Dolan
Deputy Commissioner of Internal Revenue


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