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IRS Issues Directive on Applying Accrued Benefit Rules to PEP Determination Letter Requests

The IRS on Oct. 18 issued a field directive on the application of the accrued benefit rules under Internal Revenue Code Section 411(b)(1)(G) to pending requests for determination letters by pension equity plans (PEPs).

The directive should not be used, cited or relied upon as a statement of law; in addition, it does not affect the operation of any other provision of the Internal Revenue Code, regulations or guidance. It provides direction to the employees in the IRS Employee Plans (Rulings & Agreements) office, and it supersedes memorandum #TEGE-07-1114-0028, which the IRS issued in 2014.

The field directive tells the Rulings & Agreements employees that a PEP must contain language that ensures compliance with the accrued benefit rules, and, sets forth provisions that can be included in plan documents. The memorandum tells them that to resolve the pending requests for determination letters by PEPs, they should review the plan documents to determine if any of the following provisions are included:

  • Notwithstanding any other provision in the plan, a participant’s accrued benefit as of any determination date will never be less than the benefit required to comply with section 411(b)(1)(G).

  • Notwithstanding any other provision in the plan, a participant’s accrued benefit may not be reduced on account of an increase in a participant’s age or service.

  • A participant’s accrued benefit as of any determination date shall not be less than the accrued benefit to which the participant would have been entitled if he had ceased accruals at the end of any prior plan year.

  • A participant’s accrued benefit shall be the lesser of the annuity benefit that the participant has accumulated to date (including interest projected to normal retirement age (NRA)) and the annuity benefit the participant would accumulate if he worked to NRA.

  • The accumulated benefit determined under the PEP formula as of any determination date cannot be less than the accumulated benefit as of the end of any prior year with interest credited to the determination date, determined as if the participant had ceased accruals as of the end of that prior plan year.

R&A employees can rely on the directive until the IRS issues guidance that will provide for more specific ways of complying with Section 411(b)(1)(G).