The IRS has issued final regulations updating the minimum present value requirements for pension plan distributions. The IRS issued the final regulations on Jan. 19. 
The IRS had issued proposed regulations in 2016 that updated the minimum present value requirements for defined benefit plan distributions. They were published in the Federal Register of Nov. 25, 2016.
The Final Regulations
The regulations provide guidance on changes the Pension Protection Act of 2006 (PPA) made to the prescribed interest rate and mortality table and other guidance, including rules regarding the treatment of preretirement mortality discounts and Social Security level income options.
These regulations update the existing regulations to reflect the statutory changes the PPA made, including the new interest rates and mortality tables set forth in IRC Section 417(e)(3) and the exception from the valuation rules for certain applicable DB plans set forth in IRC IRC Section 411(a)(13).
These regulations clarify that, for purposes of Section 417(e)(3), the published interest rates are to be used without further adjustment. In addition, these regulations eliminate obsolete provisions relating to the transition from pre-1995 law to the interest rates and mortality assumptions under Section 417(e)(3).
Treatment of Preretirement Mortality. These final regulations adopt the rules set forth in the proposed regulations relating to the treatment of preretirement mortality discounts in determining the minimum present value of accrued benefits.
These regulations also adopt the rule under the proposed regulations under which, for purposes of determining the present value under IRC Section 417(e)(3) regarding the portion of the accrued benefit derived from employee contributions (the employee-provided accrued benefit) that is computed in accordance with the rules of IRC Section 411(c)(2), the probability of death before the assumed commencement date may not be taken into account.
This rule is different from the rule that applies to the portion of the accrued benefit derived from employer contributions because an employee's rights in the employee-provided accrued benefit are nonforfeitable under IRC Section 411(a)(1), and the exception for death under Section 411(a)(3)(A) to the nonforfeitability of the employer-provided accrued benefit does not apply to the employee-provided accrued benefit.
Relief for Changes in Lookback Months and Stability Periods for Mortality Table and Interest Rate. The proposed regulations retained the rules providing relief under IRC Section 411(d)(6) for a plan amendment that changes lookback months or stability periods for the applicable mortality table and applicable interest rate under section 417(e)(3). Under these rules, such a plan amendment does not violate Section 411(d)(6) provided that, for a specified period, the participant is entitled to the greater of the benefits under the pre- and post-amendment timing rules.
These final regulations expand the rule previously set forth in the regulations under IRC Section 417(e) by adopting a comparable rule under Section 411(d)(6), which is set forth in Treas. Reg. §1.411(d)–3(a), that applies to amendments that change the time for determining an interest rate or mortality table that is used for any purpose.
Under these regulations, a DB plan may be amended by an amendment that is adopted on or after Jan. 19, 2024 to change the stability period from one stability period permitted under Treas. Reg. §1.417(e)–1(d)(4)(ii) to a different permitted stability period, or to change the lookback month described in Treas. Reg. §1.417(e)–1(d)(4)(iii) from one permitted lookback month to a different permitted lookback month (including an indirect change to the stability period or lookback month as a result of a change in plan year).
Such an amendment may be made regarding any plan provision under which an interest rate or mortality table is specified by reference to a stability period or a lookback month, provided that the amount of any distribution for which the annuity starting date occurs on or after the effective date of the amendment and before the end of the one-year period commencing on the applicable amendment date for the amendment is determined using the assumption that is favorable to the participant.
Applicability Dates
The changes to the regulations under IRC Section 417(e)(3) apply to distributions with annuity starting dates occurring on or after Oct. 1, 2024, except as otherwise provided.
For earlier distributions, the rules of Treas. Reg. §1.417(e)–1(d) as set forth in 26 CFR part 1, revised as of April 1, 2023, apply (taking into account any statutory changes and guidance of general applicability relating to those statutory changes), except that taxpayers may instead apply the rules of this Treasury decision.
The amendments to Treas. Reg. §1.411(d)–3(a) apply to plan amendments adopted on or after Jan. 19, 2024.
Effective Date
These regulations are effective on Jan. 19, 2024.
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