Purposed Regulations for Purchasing Longevity Annuity Contracts

February 03, 2012

SUMMARY: This document contains proposed regulations relating to the purchase of longevity annuity contracts under tax-qualified defined contribution plans under section 401(a) of the Internal Revenue Code (Code), section 403(b) plans, individual retirement annuities and accounts (IRAs) under section 408, and eligible governmental section 457 plans. These regulations will provide the public with guidance necessary to comply with the required minimum distribution rules under section 401(a)(9). The regulations will affect individuals for whom a longevity annuity contract is purchased under these plans and IRAs (and their beneficiaries), sponsors and administrators of these plans, trustees and custodians of these IRAs, and insurance companies that issue longevity annuity contracts under these plans and IRAs. This document also provides a notice of a public hearing on these proposed regulations.

EFFECTIVE DATE: Written or electronic comments must be received by May 3, 2012. Outlines of topics to be discussed at the public hearing scheduled for June 1, 2012 must be received by May 11, 2012.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (Reg-115809-11), room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to: CC:PA:LPD:PR (Reg-115809-11), Courier's Desk, Internal Revenue Service, 1111 Constitution Avenue NW., Washington, DC, or sent electronically via the Federal eRulemaking Portal at http://www.regulations.gov (IRS REG-115809-11). The public hearing will be held in the IRS Auditorium, Internal Revenue Building, 1111 Constitution Avenue NW., Washington, DC.

FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Jamie Dvoretzky at (202) 622-6060; concerning submission of comments, the hearing, and/or being placed on the building access list to attend the hearing, Oluwafunmilayo (Funmi) Taylor) at (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION: 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)). The collection of information in these proposed regulations is in SEC 1.401(a)(9)-6, A-17(a)(6) (disclosure that a contract is intended to be a qualifying longevity annuity contract) and SEC 1.6047-2 (an initial report must be prepared and an initial disclosure statement must be furnished to qualifying longevity annuity contract owners, and an annual statement must be provided to qualifying longevity annuity contract owners and their surviving spouses containing information required to be furnished to the IRS). The information in SEC 1.401(a)(9)-6, A-17(a)(6), is required in order to notify participants and beneficiaries, plan sponsors, and the IRS that the proposed regulations apply to a contract. The information in the annual statement in SEC 1.6047-2 is required in order to apply the dollar and percentage limitations in SEC 1.401(a)(9)-6, A-17(b) and SEC 1.408-8, Q&A-12(b) and to comply with other requirements of the proposed regulations, and the information in the initial report and disclosure statement in SEC 1.6047-2 is required in order for individuals to understand the features and limitations of a qualifying longevity annuity contract. The information would be used by plans and individuals to comply with the required minimum distribution rules.

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, SE:W:CAR:MP:T:T:SP; Washington, DC 20224. Comments on the collection of information should be received by April 3, 2012. Comments are specifically requested concerning:

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

The accuracy of the estimated burden associated with the proposed collection of information;

How the quality, utility, and clarity of the information to be collected may be enhanced;

How the burden of complying with the proposed collections 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 service to provide information.

Estimated total average annual recordkeeping burden: 35,661 hours.

Estimated average annual burden per response: 10 minutes.

Estimated number of responses: 213,966.

Estimated number of recordkeepers: 150.

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

This document contains proposed amendments to the Income Tax Regulations (26 CFR part 1) under sections 401(a)(9), 403(b)(10), 408(a)(6), 408(b)(3), 408A(c)(5), and 6047(d) of the Code.

Section 401(a)(9) prescribes required minimum distribution rules for a qualified trust under section 401(a). In general, under these rules, distribution of each participant's entire interest must begin by the required beginning date. The required beginning date generally is April 1 of the calendar year following the later of (1) the calendar year in which the participant attains age 701/2 or (2) the calendar year in which the participant retires. However, the ability to delay distribution until the calendar year in which a participant retires does not apply in the case of a 5-percent owner or an IRA owner.

If the entire interest of the participant is not distributed by the required beginning date, section 401(a)(9)(A) provides that the entire interest of the participant must be distributed, beginning not later than the required beginning date, in accordance with regulations, over the life of the participant or lives of the participant and a designated beneficiary (or over a period not extending beyond the life expectancy of the participant or the life expectancy of the participant and a designated beneficiary). Section 401(a)(9)(B) prescribes required minimum distribution rules that apply after the death of the participant. Section 401(a)(9)(G) provides that any distribution required to satisfy the incidental death benefit requirement of section 401(a) is treated as a required minimum distribution.

Section 403(b) plans, IRAs described in section 408, and eligible deferred compensation plans under section 457(b) also are subject to the required minimum distribution rules of section 401(a)(9) pursuant to sections 408(a)(6) and (b)(3), 403(b)(10), and 457(d)(2), respectively, and the regulations under those sections. However, pursuant to section 408A(c)(5), the minimum distribution and minimum distribution incidental benefit (MDIB) requirements do not apply to Roth IRAs during the life of the participant.

Section 408(i) provides that the trustee of an individual retirement account and the issuer of an endowment contract or an individual retirement annuity must make reports regarding such account, contract, or annuity to the Secretary and to the individuals for whom the account, contract, or annuity is maintained with respect to such matters as the Secretary may require. Pursuant to this provision, the IRS prescribes Form 5498 (IRA Contribution Information), which requires annual reporting with respect to an IRA, including a statement of the fair market value of the IRA as of the prior December 31. Section 6047(d) states that the Secretary shall by forms or regulations require that the employer maintaining, or the plan administrator of, a plan from which designated distributions (as defined in section 3405(e)(1)) may be made, and any person issuing any contract under which designated distributions may be made, make returns and reports regarding the plan or contract to the Secretary, to the participants and beneficiaries of the plan or contract, and to such other persons as the Secretary may by regulations prescribe. These sections also provide that the Secretary may, by forms or regulations, prescribe the manner and time for filing these reports. Section 6693 prescribes monetary penalties for failure to comply with section 408(i), and sections 6652 and 6704 prescribe monetary penalties for failure to comply with section 6047(d).

Section 1.401(a)(9)-6 of the Income Tax Regulations sets forth the minimum distribution rules that apply to a defined benefit plan and to annuity contracts under a defined contribution plan. Under SEC 1.401(a)(9)-6, A-12, if an annuity contract held under a defined contribution plan has not yet been annuitized, the interest of a participant or beneficiary under that contract is treated as an individual account for purposes of section 401(a)(9). Thus, the value of that contract is included in the account balance used to determine required minimum distributions from the participant's individual account.

--This is a summary of a Federal Register article originally published on the page number listed below--

Notice of proposed rulemaking and notice of public hearing.

CFR Part: "26 CFR Part 1"

RIN Number: "RIN 1545-BK23"

Citation: "77 FR 5443"

Document Number: "REG-115809-11"

Federal Register Page Number: "5443"

"Proposed Rules"