This week, the Treasury Department and the IRS proposed regulations that would permit employers to make simplifying changes in their retirement plan distribution options while protecting the rights of plan participants. These regulations interpret certain retirement plan provisions that were enacted under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).
The regulations are based on suggestions received in response to a solicitation of comments published by the IRS in 2002 and 2003. Under the proposed regulations, an employer could eliminate an optional form of benefit if the plan retains a similar form with the same value or if the plan permits participants to select among a specified group of core options that have the same value as the eliminated form. The regulations would allow plan sponsors with many different payment options to simplify the number available; however, they generally do not permit elimination of a lump sum payment option.
"The regulations implement the directive from Congress to permit a plan to eliminate complex and burdensome benefits and subsidies as long as the effect on plan participants is insignificant," stated Acting Treasury Assistant Secretary for Tax Policy Greg Jenner. "The regulations would allow employers that have accumulated numerous optional forms to simplify plan administration, but would protect optional forms of benefit that are of importance for plan participants."
Comments on these proposed regulations are requested and the regulations will be finalized only after the Treasury Department and the IRS have reviewed the comments. Until the regulations are finalized, a plan has to keep all its current distribution options.