For Tax Professionals  
T.D. 8768 April 06, 1998

Valuation of Plan Distributions

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Part 1 [TD 8768] RIN 1545-AT27

TITLE: Valuation of Plan Distributions

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains final and temporary regulations that
provide guidance to employers in determining the present value of an
employee's benefit under a qualified defined benefit pension plan,
for purposes of the applicable consent rules and for purposes of
determining the amount of a distribution made in any form other than
certain nondecreasing annuity forms. These regulations are issued to
reflect changes to the applicable law made by the Retirement
Protection Act of 1994 (RPA '94), which is part of the Uruguay Round
Agreements Act of 1994. RPA '94 amended the law to change the
interest rate, and to specify the mortality table, for the purposes
described above. These regulations affect employers that maintain
qualified defined benefit pension plans, and participants and
beneficiaries in those plans.

DATES: Effective date: These regulations are effective April 3,
1998. Applicability date: These regulations apply to plan years
beginning after December 31, 1994, except as provided in
1.417(e)-1(d)(8) and (9).

FOR FURTHER INFORMATION CONTACT: Linda S. F. Marshall, (202)
622-6030 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to the Income Tax Regulations (26
CFR part 1) under section 417(e). Section 417(e) was amended by the
Retirement Protection Act of 1994 (RPA '94).

On April 5, 1995, temporary regulations (TD 8591) under section
417(e) were published in the Federal Register (60 FR 17216). A
notice of proposed rulemaking (EE-12-95), cross-referencing the
temporary regulations, was published in the Federal Register (60 FR
17286) on the same day. The temporary regulations provide guidance
related to the determination of the present value of an employee's
benefit under a qualified defined benefit pension plan in accordance
with the rules of section 417(e)(3). After consideration of the
public comments received regarding the temporary and proposed
regulations, the temporary regulations are replaced and the proposed
regulations are adopted as revised by this Treasury decision.

Section 417(e)(3) sets forth rules to be used in determining the
present value of an employee's benefit under a qualified defined
benefit pension plan, for purposes of the applicable consent rules
and for purposes of determining the amount of a distribution.

The rules of section 417(e)(3) are also relevant to the application
of section 411(a)(11) and section 415(b).

Section 411(a)(11) provides that a participant's benefit with a
present value that exceeds a statutory threshold can be immediately
distributed to a participant only with the participant's consent.
The level of this statutory threshold was changed from $3,500 to
$5,000 by the Taxpayer Relief Act of 1997, effective for plan years
beginning after August 5, 1997. Under section 411(a)(11)(B), as
amended by RPA '94, the present value of a participant's benefit is
calculated using the rules of section 417(e)(3).

Section 415(b) limits the maximum benefit that can be provided under
a qualified defined benefit plan. Under section 415(b)(2)(E)(ii), as
amended by RPA '94, the minimum interest rate permitted to be used
for certain purposes to determine compliance with the limit under
section 415(b) is the applicable interest rate as defined in section
417(e)(3). Because the rules of section 417(e)(3) affect the
application of sections 411(a)(11)(B) and 415(b)(2)(E)(ii), the
guidance provided by these regulations is relevant to the
application of those provisions.

Explanation of provisions

Section 417(e) restricts the ability of certain qualified retirement
plans to distribute a participant's benefit under the plan without
the consent of the participant and, in many cases, the participant's
spouse. The application of these restrictions is determined based on
the present value of the participant's benefit. Prior to amendments
made by RPA '94, section 417(e)(3) restricted the interest rate to
be used under a plan to calculate the present value of a
participant's benefit, but did not impose any restrictions on the
mortality table to be used for that purpose. Section 767 of RPA '94
modified section 417(e)(3) to provide that the present value of a
participant's benefit is not less than the present value calculated
by using the applicable mortality table and the applicable interest
rate.

In general, comments received on the proposed and temporary
regulations were favorable. Thus, the final regulations retain the
general structure and substance of the proposed and temporary
regulations.

Applicable mortality table

The applicable mortality table under section 417(e)(3) is defined as
the table prescribed by the Secretary based on the prevailing
commissioners' standard table (described in section 807(d)(5)(A))
used to determine reserves for group annuity contracts issued on the
date as of which present value is being determined (without regard
to any other subparagraph of section 807(d)(5)). Currently, the
prevailing commissioners' standard table is the 1983 Group Annuity
Mortality Table. See Rev. Rul.

92-19 (1992-1 C.B. 227). These regulations retain the provision in
the temporary regulation that the applicable mortality table as
described above is to be prescribed by the Commissioner in revenue
rulings, notices or other guidance published in the Internal Revenue
Bulletin. The mortality table currently prescribed by the
Commissioner is set forth in Rev. Rul. 95-6 (1995-1 C.B. 80), and is
based on a fixed blend of 50 percent of the male mortality rates and
50 percent of the female mortality rates from the 1983 Group Annuity
Mortality Table.

Applicable interest rate

Under section 417(e)(3), the applicable interest rate is defined as
the annual rate of interest on 30-year Treasury securities for the
month before the date of distribution or such other time as the
Secretary may by regulations prescribe. These regulations retain the
rule in the temporary regulations that the applicable interest rate
for a month is the annual interest rate on 30-year Treasury
securities as specified by the Commissioner for that month. The
Commissioner publishes this interest rate for each month by notice,
after the end of the month. Currently, this interest rate is the
interest rate published in Federal Reserve releases G.13 and H.15 as
the average yield on 30-year Treasury Constant Maturities for the
month.

The interest rate on 30-year Treasury Constant Maturities published
monthly in Federal Reserve releases G.13 and H.15 can also be
obtained by telephone from the Public Information Department of the
Federal Reserve Bank of New York at (212) 720- 6130 (not a toll-free
number), or from the Federal Reserve Board of Governors' Internet
site at http://www.bog.frb.fed.us/releases. Information regarding
subscriptions to Federal Reserve releases G.13 and H.15 can be
obtained from the Publications Department of the Federal Reserve
Board of Governors at (202) 452-3244 (not a toll-free number).

Time for determining applicable interest rate

Section 417(e)(3)(A)(ii)(II) provides that the applicable interest
rate for distributions made during a month is the annual rate of
interest on 30-year Treasury securities for the month before the
date of distribution or such other time as the Secretary may by
regulations prescribe. As an alternative to this monthly change in
the applicable interest rate, the temporary regulations permitted
selection of a plan quarter or a plan year as a stability period
during which the applicable interest rate remains constant, thereby
permitting plans to offer greater benefit stability than is provided
by the statutory rule.

One commentator suggested adding a calendar year and a calendar
quarter as additional alternative stability periods for the
applicable interest rate, and another suggested adding a plan half-
year. The IRS and Treasury have weighed the usefulness of the
additional proposed stability periods for taxpayers against the
additional complexity that would be added to the regulation, and
have added a calendar year and a calendar quarter as additional
alternative stability periods.

These regulations retain the rule in the temporary regulations that
the applicable interest rate for the stability period may be
determined as the 30-year Treasury rate for any one of the five
calendar months preceding the first day of the stability period.
Permitting this "lookback" of up to five months provides added
flexibility and gives plan administrators and participants more time
to comply with applicable notice and election requirements using the
actual interest rate (instead of an estimate).

Several commentators suggested that regulations permit an average of
lookback month interest rates to be used, in lieu of the interest
rate for a single lookback month, to minimize interest rate
fluctuations. These regulations adopt this suggestion, and permit an
average interest rate based on consecutive permitted lookback months
to be used for this purpose.

Several commentators suggested that a plan be allowed to provide for
different applicable interest rates for each portion of the plan
that independently meets the requirements of sections 410(b) and
401(a)(26). The IRS and Treasury have determined, however, that
there is insufficient basis for adopting a definition of a "plan"
that is different from the general definition set forth in
1.414(l)-1(b)(1).

Exceptions from the requirements of section 417(e)(3) The temporary
regulations provided an exception from the requirements of section
417(e)(3) and 1.417(e)-1T(d) for the amount of a distribution under
a nondecreasing annuity payable for a period not less than the life
of the participant or, in the case of a QPSA, the life of the
surviving spouse. For purposes of this exception, a nondecreasing
annuity included a QJSA, a QPSA, and an annuity that decreased
merely because of the cessation or reduction of Social Security
supplements or qualified disability payments (as defined in section
411(a)(9)).

This exception was identical to the exception provided under former
final regulations. Several commentators pointed out that this
exception did not cover several other types of annuity forms of
distribution that were nondecreasing during the life of the
participant, and suggested that the regulations be changed to
provide additional exceptions for these additional annuity forms of
distribution.

The IRS and Treasury have determined that it is appropriate to
provide additional exceptions for these benefit forms.

Accordingly, under the final regulations, section 417(e)(3) and
1.417(e)-1(d) do not apply to the amount of a distribution paid in
the form of an annual benefit that does not decrease during the life
of the participant, or, in the case of a QPSA, the life of the
participant's spouse; or that decreases during the life of the
participant merely because of the death of the survivor annuitant
(but only if the reduction is to a level not below 50% of the annual
benefit payable before the death of the survivor annuitant) or
merely because of the cessation or reduction of Social Security
supplements or qualified disability benefits.

Also, under Q&A-2 of Rev. Rul. 98-1 (1998-2 I.R.B. 1), the interest
rate prescribed by section 415(b)(2)(E)(ii) does not apply to these
forms of benefit.

Effective dates These regulations generally apply to plan years
beginning after December 31, 1994.

Under section 417(e)(3)(B) and these regulations, the general
effective date for the RPA '94 rules is delayed for certain plans
until the first plan year that begins after December 31, 1999,
unless an employer takes earlier action. The delayed effective date
applies to a plan adopted and in effect before December 8, 1994, if
the provisions of the plan in effect on December 7, 1994, met the
requirements of section 417(e)(3) as in effect on December 7, 1994.
For such a plan, the determination of whether a distribution made
before the first day of the first plan year that begins after
December 31, 1999, satisfies section 417(e) is made under the
provisions of the plan in effect on December 7, 1994, if the annuity
starting date for the distribution occurs before the date a plan
amendment applying both the applicable mortality table and the
applicable interest rate rules added by RPA '94 is adopted or, if
later, is made effective. Thus, under section 417(e)(3)(B) and these
regulations, a plan that was adopted and in effect before December
8, 1994, and the provisions of which, as in effect on December 7,
1994, met the requirements of section 417(e)(3) as in effect on that
date, cannot be amended to provide a different method of calculating
the present value of a distribution under section 417(e)(3)
effective before the date a plan amendment applying both the
applicable mortality table and the applicable interest rate rules
added by RPA '94 is adopted or, if later, is made effective.

One commentator inquired whether, where a plan is spun off from
another plan during the optional delayed effective date period, both
plans are required to be amended to apply the applicable mortality
table and the applicable interest rate rules added by RPA '94
effective on the same date. Because these rules apply on a plan by
plan basis, the plans are not required to be amended effective on
the same date. One other commentator suggested that the regulations
be changed to permit a plan to provide for different optional
delayed effective dates for each separate benefit structure that
independently meets the requirements of section 401(a)(4). Section
417(e)(3)(B) requires a single effective date for a plan amendment
applying the applicable mortality table and the applicable interest
rate rules added by RPA '94. Therefore, this suggestion is
inconsistent with the statute. Of course, a plan amendment that
applies the applicable mortality table and the applicable interest
rate rules added by RPA '94 may provide for temporary or permanent
use of interest and mortality assumptions for specified participant
groups that result in larger distributions than the minimum required
under these RPA '94 rules, provided that other qualification
requirements (such as section 401(a)(4)) are satisfied.

These regulations restate the rules applicable to plan years
beginning before January 1, 1995, without substantive change. Those
pre-1995 rules also apply to later plan years, to the extent that
the application of the RPA '94 rules is delayed as described above.

In addition, section 767(d)(1) of RPA '94 permits an employer to
elect to accelerate the effective date of the RPA '94 rules, and
hence these regulations, in order to apply the RPA '94 rules to
distributions with annuity starting dates occurring after December
7, 1994, in plan years beginning before January 1, 1995. An employer
that makes a plan amendment applying the applicable mortality table
and the applicable interest rate rules of these regulations is
treated as making this election as of the date the plan amendment is
adopted or, if later, is made effective.

Relationship with section 411(d)(6)

Section 411(d)(6) provides that a plan does not satisfy the
requirements of section 411 if the accrued benefit of a participant
is decreased by a plan amendment. In general, a plan amendment that
changes the interest rate or the mortality assumptions used for
purposes of determining the amount of any accrued benefit in any
preexisting optional form is subject to section 411(d)(6).
Consistent with both the temporary regulations and the prior final
regulations, these regulations provide limited section 411(d)(6)
relief for certain plan amendments that change the time for
determining the applicable interest rate. A plan amendment that
changes the time for determining the applicable interest rate will
not be treated as violating section 411(d)(6) if each distribution
made until one year after the later of the effective date or the
adoption date of the amendment is calculated using the time for
determining the applicable interest rate as provided before or after
the amendment, whichever produces the larger benefit. For this
purpose, all other plan provisions must be applied as in effect
after the amendment.

Section 767(d)(2) of RPA '94 provides that a participant's accrued
benefit is not considered to be reduced in violation of section
411(d)(6) merely because the benefit is determined in accordance
with the applicable interest rate rules and the applicable mortality
table rules of section 417(e)(3)(A), as amended by RPA '94. These
regulations provide that an amendment replacing an interest rate
used for purposes of section 417(e)(3) qualifies for this section
411(d)(6) relief if the interest rate replaced is the Pension
Benefit Guaranty Corporation (PBGC) interest rate or a rate based on
the PBGC interest rate.

Pursuant to suggestions made by several commentators, these
regulations clarify that the interest rates that may be replaced
pursuant to this section 411(d)(6) relief include an interest rate
based on the average of the PBGC interest rates over a specified
period. In addition, pursuant to suggestions made by two
commentators, the final regulations clarify the relationship between
the various types of section 411(d)(6) relief under the regulations,
and provide some additional flexibility to employers in determining
how to transition between the PBGC interest rate and the applicable
interest rate and applicable mortality table, where the transition
is combined with a change in the time for determining the interest
rate.

One commentator asked whether the section 411(d)(6) relief for plan
amendments adopting the applicable mortality table and the
applicable interest rate rules applies with respect to terminated
vested participants. Because the section 411(d)(6) relief provided
under section 767(d)(2) of RPA '94 applies in the same manner with
respect to active and terminated participants, the regulations
likewise do not distinguish terminated vested participants from
other participants in this regard.

Several commentators requested that the regulations be amended to
provide unconditional section 411(d)(6) relief for plan amendments
adopting the applicable interest rate and applicable mortality table
rules of RPA '94 regardless of changes in the time for determining
the applicable interest rate. The IRS and Treasury have determined
that providing some additional flexibility to employers in
determining how to transition between the PBGC interest rate and the
applicable interest rate and applicable mortality table, as
discussed above, where the transition is combined with a change in
the time for determining the interest rate, strikes an appropriate
balance between the practical concerns of employers and the rights
of participants.

These regulations further provide that, where a plan provided for
the use of an interest rate not based on the PBGC interest rate
prescribed by section 417(e)(3) as in effect before amendments made
by RPA '94, a plan amendment that eliminates the use of that
interest rate and the associated mortality table may result in a
reduction of a participant's accrued benefit, which would violate
the requirements of section 411(d)(6). Two commentators suggested
that final regulations provide section 411(d)(6) relief for plan
amendments that eliminate the use of an interest rate not based on
the PBGC interest rate, for plan amendments that adopt the
applicable interest rate and applicable mortality table rules of RPA
'94. Another commentator requested that final regulations provide
for similar section 411(d)(6) relief, but only for mandatory
distributions that are permitted pursuant to the rules of section
411(a)(11). The IRS and Treasury have determined that section 767(d)
(2) of RPA '94 does not support a grant of section 411(d)(6) relief
with respect to plan amendments eliminating interest rates that are
not based on the PBGC interest rate.

These regulations provide examples of the application of section
411(d)(6) and the special rule of section 767(d)(2) of RPA '94,
including an example illustrating the use of a phase-in that
provides for a smoother transition from the plan's former terms to
the new rules. In addition, these regulations provide section 411(d)
(6) relief for certain plan amendments that eliminate use of the
applicable interest rate and the applicable mortality table with
respect to distribution forms that are newly excepted from the
application of section 417(e)(3) by these regulations. The PBGC has
advised the IRS and Treasury that it has not made any decision at
this time on whether it will continue to calculate and publish the
relevant interest rates after the year 2000. Therefore, in amending
plans to comply with these regulations, employers should not rely on
the continued determination and publication of these rates by the
PBGC beyond the year 2000.

Special Analyses

It has been determined that this Treasury decision 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, and because the
notice of proposed rulemaking preceding the regulations was issued
prior to March 29, 1996, the Regulatory Flexibility Act (5 U.S.C.
chapter 6) does not apply. Pursuant to section 7805(f) of the
Internal Revenue Code, the notice of proposed rulemaking preceding
these regulations was submitted to the Chief Counsel for Advocacy of
the Small Business Administration for comment on its impact on small
business.

Drafting Information

The principal author of these regulations is Linda S. F.

Marshall, Office of the Associate Chief Counsel (Employee Benefits
and Exempt Organizations). 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.

Adoption of Amendments to the Regulations Accordingly, 26 CFR part 1
is amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 is amended by adding
an entry in numerical order to read as follows:

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

Section 1.417(e)-1 also issued under 26 U.S.C.

417(e)(3)(A)(ii)(II). * * *

Par. 2. In 1.417(e)-1, paragraph (d) is revised to read as follows:

1.417(e)-1 Restrictions and valuations of distributions from plans
subject to sections 401(a)(11) and 417.

* * * * *

(d) Present value requirement--(1) General rule. A defined benefit
plan must provide that the present value of any accrued benefit and
the amount (subject to sections 411(c)(3) and 415) of any
distribution, including a single sum, must not be less than the
amount calculated using the applicable interest rate described in
paragraph (d)(3) of this section (determined for the month described
in paragraph (d)(4) of this section) and the applicable mortality
table described in paragraph (d)(2) of this section. The present
value of any optional form of benefit cannot be less than the
present value of the normal retirement benefit determined in
accordance with the preceding sentence. The same rules used for the
plan under this paragraph (d) must also be used to compute the
present value of the benefit for purposes of determining whether
consent for a distribution is required under paragraph (b) of this
section.

(2) Applicable mortality table. The applicable mortality table is
the mortality table based on the prevailing commissioners' standard
table (described in section 807(d)(5)(A)) used to determine reserves
for group annuity contracts issued on the date as of which present
value is being determined (without regard to any other subparagraph
of section 807(d)(5)), that is prescribed by the Commissioner in
revenue rulings, notices, or other guidance published in the
Internal Revenue Bulletin (see 601.601(d)(2)(ii)(b) of this
chapter). The Commissioner may prescribe rules that apply in the
case of a change to the prevailing commissioners' standard table
(described in section 807(d)(5)(A)) used to determine reserves for
group annuity contracts, in revenue rulings, notices, or other
guidance published in the Internal Revenue Bulletin (see 601.601(d)
(2)(ii)(b) of this chapter).

(3) Applicable interest rate--(i) General rule. The applicable
interest rate for a month is the annual interest rate on 30-year
Treasury securities as specified by the Commissioner for that month
in revenue rulings, notices or other guidance published in the
Internal Revenue Bulletin (see 601.601(d)(2)(ii)(b) of this
chapter). ( ii) Example. This example illustrates the rules of this
paragraph (d)(3):

Example. Plan A is a calendar year plan. For its 1995 plan year,
Plan A provides that the applicable mortality table is the table
described in Rev. Rul. 95-6 (1995-1 C.B. 80), and that the
applicable interest rate is the annual interest rate on 30-year
Treasury securities as specified by the Commissioner for the first
full calendar month preceding the calendar month that contains the
annuity starting date. Participant P is age 65 in January 1995,
which is the month that contains P's annuity starting date. P has an
accrued benefit payable monthly of $1,000 and has elected to receive
a distribution in the form of a single sum in January 1995. The
annual interest rate on 30-year Treasury securities as published by
the Commissioner for December 1994 is 7.87 percent. To satisfy the
requirements of section 417(e)(3) and this paragraph (d), the single
sum received by P may not be less than $111,351.

(4) Time for determining interest rate--(i) General rule.

Except as provided in paragraph (d)(4)(iv) or (v) of this section,
the applicable interest rate to be used for a distribution is the
rate determined under paragraph (d)(3) of this section for the
applicable lookback month. The applicable lookback month for a
distribution is the lookback month (as described in paragraph (d)(4)
(iii) of this section) for the month (or other longer stability
period described in paragraph (d)(4)(ii) of this section) that
contains the annuity starting date for the distribution. The time
and method for determining the applicable interest rate for each
participant's distribution must be determined in a consistent manner
that is applied uniformly to all participants in the plan.

(ii) Stability period. A plan must specify the period for which the
applicable interest rate remains constant. This stability period may
be one calendar month, one plan quarter, one calendar quarter, one
plan year, or one calendar year.

(iii) Lookback month. A plan must specify the lookback month that is
used to determine the applicable interest rate.

The lookback month may be the first, second, third, fourth, or fifth
full calendar month preceding the first day of the stability period.

(iv) Permitted average interest rate. A plan may apply the rules of
paragraph (d)(4)(i) of this section by substituting a permitted
average interest rate with respect to the plan's stability period
for the rate determined under paragraph (d)(3) of this section for
the applicable lookback month for the stability period. For this
purpose, a permitted average interest rate with respect to a
stability period is an interest rate that is computed by averaging
the applicable interest rates determined under paragraph (d)(3) of
this section for two or more consecutive months from among the
first, second, third, fourth, and fifth calendar months preceding
the first day of the stability period. For this paragraph (d)(4)(iv)
to apply, a plan must specify the manner in which the permitted
average interest rate is computed.

(v) Additional determination dates. The Commissioner may prescribe,
in revenue rulings, notices or other guidance published in the
Internal Revenue Bulletin (see 601.601(d)(2)(ii)(b)), other times
that a plan may provide for determining the applicable interest
rate. ( vi) Example. This example illustrates the rules of this
paragraph (d)(4):

Example. Employer X maintains Plan A, a calendar year plan.

Employer X wishes to amend Plan A so that the applicable interest
rate will remain fixed for each plan quarter, and so that the
applicable interest rate for distributions made during each plan
quarter can be determined approximately 80 days before the beginning
of the plan quarter. To comply with the provisions of this paragraph
(d)(4), Plan A is amended to provide that the applicable interest
rate is the annual interest rate on 30-year Treasury securities as
specified by the Commissioner for the fourth calendar month
preceding the first day of the plan quarter during which the annuity
starting date occU.S. (5) Use of alternative interest rate and
mortality table.

If a plan provides for use of an interest rate or mortality table
other than the applicable interest rate or the applicable mortality
table, the plan must provide that a participant's benefit must be at
least as great as the benefit produced by using the applicable
interest rate and the applicable mortality table. For example, if a
plan provides for use of an interest rate of 7% and the UP-1984
Mortality Table (see 1.401(a)(4)-12, Standard mortality table) in
calculating single-sum distributions, the plan must provide that any
single-sum distribution is calculated as the greater of the single-
sum benefit calculated using 7% and the UP-1984 Mortality Table and
the single-sum benefit calculated using the applicable interest rate
and the applicable mortality table.

(6) Exceptions. This paragraph (d) (other than the provisions
relating to section 411(d)(6) requirements in paragraph (d)(10) of
this section) does not apply to the amount of a distribution paid in
the form of an annual benefit that--

(i) Does not decrease during the life of the participant, or, in the
case of a QPSA, the life of the participant's spouse; or

(ii) Decreases during the life of the participant merely because
of--

(A) The death of the survivor annuitant (but only if the reduction
is to a level not below 50% of the annual benefit payable before the
death of the survivor annuitant); or

(B) The cessation or reduction of Social Security supplements or
qualified disability benefits (as defined in section 411(a)(9)).

(7) Defined contribution plans. Because the accrued benefit under a
defined contribution plan equals the account balance, a defined
contribution plan is not subject to the requirements of this
paragraph (d), even though it is subject to section 401(a)(11).

(8) Effective date--(i) In general. This paragraph (d) is effective
for distributions with annuity starting dates in plan years
beginning after December 31, 1994.

(ii) Optional delayed effective date of Retirement Protection Act of
1994 (RPA '94)(108 Stat. 5012) rules for plans adopted and in effect
before December 8, 1994. For a plan adopted and in effect before
December 8, 1994, the application of the rules relating to the
applicable mortality table and applicable interest rate under
paragraphs (d)(2) through (4) of this section is delayed to the
extent provided in this paragraph ( d)(8)(ii), if the plan
provisions in effect on December 7, 1994, met the requirements of
section 417(e)(3) and 1.417(e)-1(d) as in effect on December 7,
1994 (as contained in 26 CFR part 1 revised April 1, 1995). In the
case of a distribution from such a plan with an annuity starting
date that precedes the optional delayed effective date described in
paragraph (d)(8)(iv) of this section, and that precedes the first
day of the first plan year beginning after December 31, 1999, the
rules of paragraph (d)(9) of this section (which generally apply to
distributions with annuity starting dates in plan years beginning
before January 1, 1995) apply in lieu of the rules of paragraphs (d)
(2) through (4) of this section. The interest rate under the rules
of paragraph (d)(9) of this section is determined under the
provisions of the plan as in effect on December 7, 1994, reflecting
the interest rate or rates published by the Pension Benefit Guaranty
Corporation (PBGC) and the provisions of the plan for determining
the date on which the interest rate is fixed. The above described
interest rate or rates published by the PBGC are those determined by
the PBGC (for the date determined under those plan provisions)
pursuant to the methodology under the regulations of the PBGC for
determining the present value of a lump sum distribution on plan
termination under 29 CFR part 2619 that were in effect on September
1, 1993 (as contained in 29 CFR part 2619 revised July 1, 1994).

(iii) Optional accelerated effective date of RPA '94 rules.

This paragraph (d) is also effective for a distribution with an
annuity starting date after December 7, 1994, during a plan year
beginning before January 1, 1995, if the employer elects, on or
before the annuity starting date, to make the rules of this
paragraph (d) effective with respect to the plan as of the optional
accelerated effective date described in paragraph (d)(8)(iv) of this
section. An employer is treated as making this election by making
the plan amendments described in paragraph (d)(8)(iv) of this
section.

(iv) Determination of delayed or accelerated effective date by plan
amendment adopting RPA '94 rules. The optional delayed effective
date of paragraph (d)(8)(ii) of this section, or the optional
accelerated effective date of paragraph (d)(8)(iii) of this section,
whichever is applicable, is the date plan amendments applying both
the applicable mortality table of paragraph (d)(2) of this section
and the applicable interest rate of paragraph (d)(3) of this section
are adopted or, if later, are made effective.

(9) Plan years beginning before January 1, 1995--(i) Interest rate.
(A) For distributions made in plan years beginning after December
31, 1986, and before January 1, 1995, the following interest rate
described in paragraph (d)(9)(i)(A)(1) or (2) of this section,
whichever applies, is substituted for the applicable interest rate
for purposes of this section--

(1) The rate or rates that would be used by the PBGC for a trusteed
single-employer plan to value the participant's (or beneficiary's)
vested benefit (PBGC interest rate) if the present value of such
benefit does not exceed $25,000; or

(2) 120 percent of the PBGC interest rate, as determined in
accordance with paragraph (d)(9)(i)(A)(1) of this section, if such
present value exceeds $25,000. In no event shall the present value
determined by use of 120 percent of the PBGC interest rate result in
a present value less than $25,000.

(B) The PBGC interest rate may be a series of interest rates for any
given date. For example, the PBGC interest rate for immediate
annuities for November 1994 is 6%, and the PBGC interest rates for
the deferral period for that month are as follows: 5.25% for the
first 7 years of the deferral period, 4% for the following 8 years
of the deferral period, and 4% for the remainder of the deferral
period. For November 1994, 120 percent of the PBGC interest rate is
7.2% (1.2 times 6%) for an immediate annuity, 6.3% (1.2 times 5.25%)
for the first 7 years of the deferral period, 4.8% (1.2 times 4%)
for the following 8 years of the deferral period, and 4.8% (1.2
times 4%) for the remainder of the deferral period. The PBGC
interest rates are the interest rates that would be used (as of the
date of the distribution) by the PBGC for purposes of determining
the present value of that benefit upon termination of an
insufficient trusteed single employer plan. Except as otherwise
provided by the Commissioner, the PBGC interest rates are determined
by PBGC regulations. See subpart B of 29 CFR part 4044 for the
applicable PBGC rates. ( ii) Time for determining interest rate. (A)
Except as provided in paragraph (d)(9)(ii)(B) of this section, the
PBGC interest rate or rates are determined on either the annuity
starting date or the first day of the plan year that contains the
annuity starting date. The plan must provide which date is
applicable.

(B) The plan may provide for the use of any other time for
determining the PBGC interest rate or rates provided that such time
is not more than 120 days before the annuity starting date if such
time is determined in a consistent manner and is applied uniformly
to all participants.

(C) The Commissioner may, in revenue rulings, notices or other
guidance published in the Internal Revenue Bulletin (see 601.601(d)
(2)(ii)(b)), prescribe other times for determining the PBGC interest
rate or rates.

(iii) No applicable mortality table. In the case of a distribution
to which this paragraph (d)(9) applies, the rules of this paragraph
(d) are applied without regard to the applicable mortality table
described in paragraph (d)(2) of this section.

(10) Relationship with section 411(d)(6)--(i) In general. A plan
amendment that changes the interest rate, the time for determining
the interest rate, or the mortality assumptions used for the
purposes described in paragraph (d)(1) of this section is subject to
section 411(d)(6). But see 1.411(d)-4, Q&A-2( b)(2)(v) (regarding
plan amendments relating to involuntary distributions). In addition,
a plan amendment that changes the interest rate or the mortality
assumptions used for the purposes described in paragraph (d)(1) of
this section merely to eliminate use of the interest rate described
in paragraph (d)(3) or paragraph (d)(9) of this section, or the
applicable mortality table, with respect to a distribution form
described in paragraph (d)(6) of this section, for distributions
with annuity starting dates occurring after a specified date that is
after the amendment is adopted, does not violate the requirements of
section 411(d)(6) if the amendment is adopted on or before the last
day of the last plan year ending before January 1, 2000.

(ii) Section 411(d)(6) relief for change in time for determining
interest rate. Notwithstanding the general rule of paragraph (d)(10)
(i) of this section, if a plan amendment changes the time for
determining the applicable interest rate (including an indirect
change as a result of a change in plan year), the amendment will not
be treated as reducing accrued benefits in violation of section
411(d)(6) merely on account of this change if the conditions of this
paragraph (d)(10)(ii) are satisfied.

If the plan amendment is effective on or after the adoption date,
any distribution for which the annuity starting date occurs in the
one-year period commencing at the time the amendment is effective
must be determined using the interest rate provided under the plan
determined at either the date for determining the interest rate
before the amendment or the date for determining the interest rate
after the amendment, whichever results in the larger distribution.
If the plan amendment is adopted retroactively (that is, the
amendment is effective prior to the adoption date), the plan must
use the interest rate determination date resulting in the larger
distribution for the period beginning with the effective date and
ending one year after the adoption date.

(iii) Section 411(d)(6) relief for plan amendments pursuant to
changes to section 417 made by RPA '94 providing for statutory
interest rate determination date. Notwithstanding the general rule
of paragraph (d)(10)(i) of this section, except as provided in
paragraph (d)(10)(vi)(B) of this section, a participant's accrued
benefit is not considered to be reduced in violation of section
411(d)(6) merely because of a plan amendment that changes any
interest rate or mortality assumption used to calculate the present
value of a participant's benefit under the plan, if the following
conditions are satisfied--

(A) The amendment replaces the PBGC interest rate (or an interest
rate or rates based on the PBGC interest rate) as the interest rate
used under the plan in determining the present value of a
participant's benefit under this paragraph (d); and

(B) After the amendment is effective, the present value of a
participant's benefit under the plan cannot be less than the amount
calculated using the applicable mortality table and the applicable
interest rate for the first full calendar month preceding the
calendar month that contains the annuity starting date.

(iv) Section 411(d)(6) relief for plan amendments pursuant to
changes to section 417 made by RPA '94 providing for prior
determination date or up to two months earlier. Notwithstanding the
general rule of paragraph (d)(10)(i) of this section, except as
provided in paragraph (d)(10)(vi)(B) of this section, a
participant's accrued benefit is not considered to be reduced in
violation of section 411(d)(6) merely because of a plan amendment
that changes any interest rate or mortality assumption used to
calculate the present value of a participant's benefit under the
plan, if the following conditions are satisfied--

(A) The amendment replaces the PBGC interest rate (or an interest
rate or rates based on the PBGC interest rate) as the interest rate
used under the plan in determining the present value of a
participant's benefit under this paragraph (d); and

(B) After the amendment is effective, the present value of a
participant's benefit under the plan cannot be less than the amount
calculated using the applicable mortality table and the applicable
interest rate, but only if the applicable interest rate is the
annual interest rate on 30-year Treasury securities for the calendar
month that contains the date as of which the PBGC interest rate (or
an interest rate or rates based on the PBGC interest rate) was
determined immediately before the amendment, or for one of the two
calendar months immediately preceding such month.

(v) Section 411(d)(6) relief for plan amendments pursuant to changes
to section 417 made by RPA '94 providing for other interest rate
determination date. Notwithstanding the general rule of paragraph
(d)(10)(i) of this section, except as provided in paragraph (d)(10)
(vi)(B) of this section, a participant's accrued benefit is not
considered to be reduced in violation of section 411(d)(6) merely
because of a plan amendment that changes any interest rate or
mortality assumption used to calculate the present value of a
participant's benefit under the plan, if the following conditions
are satisfied--

(A) The amendment replaces the PBGC interest rate (or an interest
rate or rates based on the PBGC interest rate) as the interest rate
used under the plan in determining the present value of a
participant's benefit under this paragraph (d);

(B) After the amendment is effective, the present value of a
participant's benefit under the plan cannot be less than the amount
calculated using the applicable mortality table and the applicable
interest rate; and

(C) The plan amendment satisfies either the condition of paragraph
(d)(10)(ii) of this section (determined using the interest rate
provided under the terms of the plan after the effective date of the
amendment) or the special early transition interest rate rule of
paragraph (d)(10)(vi)(C) of this section.

(vi) Special rules--(A) Provision of temporary additional benefits.
A plan amendment described in paragraph (d)(10)(iii), (iv), or (v)
of this section is not considered to reduce a participant's accrued
benefit in violation of section 411(d)(6) even if the plan amendment
provides for temporary additional benefits to accommodate a more
gradual transition from the plan's old interest rate to the new
rules.

(B) Replacement of non-PBGC interest rate. The section 411(d)(6)
relief provided in paragraphs (d)(10)(iii) through (v) of this
section does not apply to a plan amendment that replaces an interest
rate other than the PBGC interest rate (or an interest rate or rates
based on the PBGC interest rate) as an interest rate used under the
plan in determining the present value of a participant's benefit
under this paragraph (d). Thus, the accrued benefit determined using
that interest rate and the associated mortality table is protected
under section 411(d)(6).

For purposes of this paragraph (d), an interest rate is based on the
PBGC interest rate if the interest rate is defined as a specified
percentage of the PBGC interest rate, the PBGC interest rate minus a
specified number of basis points, or an average of such interest
rates over a specified period.

(C) Special early transition interest rate rule for paragraph (d)
(10)(v). A plan amendment satisfies the special rule of this
paragraph (d)(10)(vi)(C) if any distribution for which the annuity
starting date occurs in the one-year period commencing at the time
the plan amendment is effective is determined using whichever of the
following two interest rates results in the larger distribution--

(1) The interest rate as provided under the terms of the plan after
the effective date of the amendment, but determined at a date that
is either one month or two months (as specified in the plan) before
the date for determining the interest rate used under the terms of
the plan before the amendment; or

(2) The interest rate as provided under the terms of the plan after
the effective date of the amendment, determined at the date for
determining the interest rate after the amendment.

(vii) Examples. The provisions of this paragraph (d)(10) are
illustrated by the following examples:

Example 1. On December 31, 1994, Plan A provided that all single-sum
distributions were to be calculated using the UP-1984 Mortality
Table and 100% of the PBGC interest rate for the date of
distribution. On January 4, 1995, and effective on February 1, 1995,
Plan A was amended to provide that all single-sum distributions are
calculated using the applicable mortality table and the annual
interest rate on 30-year Treasury securities for the first full
calendar month preceding the calendar month that contains the
annuity starting date. Pursuant to paragraph (d)(10)(iii) of this
section, this amendment of Plan A is not considered to reduce the
accrued benefit of any participant in violation of section 411(d)
(6).

Example 2. On December 31, 1994, Plan B provided that all single-sum
distributions were to be calculated using the UP-1984 Mortality
Table and an interest rate equal to the lesser of 100% of the PBGC
interest rate for the date of distribution, or 6%.

On January 4, 1995, and effective on February 1, 1995, Plan B was
amended to provide that all single-sum distributions are calculated
using the applicable mortality table and the annual interest rate on
30-year Treasury securities for the second full calendar month
preceding the calendar month that contains the annuity starting
date. Pursuant to paragraph (d)(10)(iv) of this section, this
amendment of Plan B is not considered to reduce the accrued benefit
of any participant in violation of section 411(d)(6) merely because
of the replacement of the PBGC interest rate. However, under
paragraph (d)(10)(vi)(B) of this section, the section 411(d)(6)
relief provided in paragraphs (d)(10)(iii) through (v) of this
section does not apply to a plan amendment that replaces an interest
rate other than the PBGC interest rate (or a rate based on the PBGC
interest rate). Therefore, pursuant to paragraph (d)(10)(vi)(B) of
this section, to satisfy the requirements of section 411(d)(6), the
plan must provide that the single-sum distribution payable to any
participant must be no less than the single-sum distribution
calculated using the UP-1984 Mortality Table and an interest rate of
6%, based on the participant's benefits under the plan accrued
through January 31, 1995, and based on the participant's age at the
annuity starting date.

Example 3. On December 31, 1994, Plan C, a calendar year plan,
provided that all single sum distributions were to be calculated
using the UP-1984 Mortality Table and an interest rate equal to the
PBGC interest rate for January 1 of the plan year.

On March 1, 1995, and effective on July 1, 1995, Plan C was amended
to provide that all single-sum distributions are calculated using
the applicable mortality table and the annual interest rate on 30-
year Treasury securities for August of the year before the plan year
that contains the annuity starting date. The plan amendment provides
that each distribution with an annuity starting date after June 30,
1995, and before July 1, 1996, is calculated using the 30-year
Treasury rate for August of the year before the plan year that
contains the annuity starting date, or the 30-year Treasury rate for
January of the plan year that contains the annuity starting date,
whichever produces the larger benefit. Pursuant to paragraph (d)(10)
(v) of this section, the amendment of Plan C is not considered to
have reduced the accrued benefit of any participant in violation of
section 411(d)(6).

Example 4. (a) Employer X maintains Plan D, a calendar year plan. As
of December 7, 1994, Plan D provided for single-sum distributions to
be calculated using the PBGC interest rate as of the annuity
starting date for distributions not greater than $25,000, and 120%
of that interest rate (but not an interest rate producing a present
value less than $25,000) for distributions over $25,000. Employer X
wishes to delay the effective date of the RPA '94 rules for a year,
and to provide for an extended transition from the use of the PBGC
interest rate to the new applicable interest rate under section
417(e)(3). On December 1, 1995, and effective on January 1, 1996,
Employer X amends Plan D to provide that single-sum distributions
are determined as the sum of--

(i) The single-sum distribution calculated based on the applicable
mortality table and the annual interest rate on 30- year Treasury
securities for the first full calendar month preceding the calendar
month that contains the annuity starting date; and

(ii) A transition amount.

(b) The amendment provides that the transition amount for
distributions in the years 1996-99 is a transition percentage of the
excess, if any, of the amount that the single-sum distribution would
have been under the plan provisions in effect prior to this
amendment over the amount of the single sum described in paragraph
(a)(i) of this Example 4. The transition percentages are 80% for
1996, decreasing to 60% for 1997, 40% for 1998 and 20% for 1999. The
amendment also provides that the transition amount is zero for plan
years beginning on or after the year 2000. Pursuant to paragraphs
(d)(10)(iii) and (vi)(A) of this section, the amendment of Plan D is
not considered to have reduced the accrued benefit of any
participant in violation of section 411(d)(6).

Example 5. On December 31, 1994, Plan E, a calendar year plan,
provided that all single sum distributions were to be calculated
using the UP-1984 Mortality Table and an interest rate equal to the
PBGC interest rate for January 1 of the plan year.

On March 1, 1995, and effective on July 1, 1995, Plan E was amended
to provide that all single-sum distributions are calculated using
the applicable mortality table and the annual interest rate on 30-
year Treasury securities for August of the year before the plan year
that contains the annuity starting date. The plan amendment provides
that each distribution with an annuity starting date after June 30,
1995, and before July 1, 1996, is calculated using the 30-year
Treasury rate for August of the year before the plan year that
contains the annuity starting date, or the 30-year Treasury rate for
November of the plan year preceding the plan year that contains the
annuity starting date, whichever produces the larger benefit.
Pursuant to paragraphs (d)(10)(v) and (vi)(C) of this section, the
amendment of Plan E is not considered to have reduced the accrued
benefit of any participant in violation of section 411(d)(6).

Par. 3. In 1.417(e)-1T, paragraph (d) is revised to read as
follows:

1.417(e)-1T Restrictions and valuations of distributions from plans
subject to sections 401(a)(11) and 417. (Temporary)

* * * * *

(d) For rules regarding the present value of a participant's accrued
benefit and related matters, see 1.417(e)-1( d).

Michael P. Dolan
Deputy Commissioner of Internal Revenue
Approved: March 30, 1998
Donald C. Lubick
Assistant Secretary of the Treasury


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