<nobr>Nov 6, 2007</nobr>

IRS Releases Guidance Affecting Lump Sums; 204(h) Requirements

The IRS has released guidance affecting the Pension Protection Act (PPA) lump sump provisions (IRC section 417(e)(3)) and 204(h) notice requirements. IRS Revenue Ruling 2007-67 (below) provides lump sum mortality tables and answers some questions regarding changes made by the PPA to the lump sum present value determination rules. Specifically, the revenue ruling addresses the following questions:

1) Do the timing rules for the determination of the applicable interest rate under sections 1.417(e)-1(d)(4) and 1.417(e)-1(d)(10)(ii) of the Income Tax Regulations continue to apply for distributions with annuity starting dates occurring during plan years beginning on or after January 1, 2008?

2) What mortality table is the applicable mortality table under section 417(e)(3)(B) of the Internal Revenue Code ("Code") for distributions with annuity starting dates occurring during plan years beginning on or after January 1, 2008?

3) Does an amendment that implements the new interest rates and mortality table under section 417(e)(3) violate the requirements of section 411(d)(6)?

Under the revenue ruling, the lookback and stability period is maintained for determining lump sum interest rates. The ruling does not say, however, that plans may continue to use GATT rates for any transition period (without violating the QJSA most valuable form of payment rule) but can be read to say that you get anticutback relief if you delay implementing the change in the interest rate.

The ruling also clarifies that plan amendments made to implement the new interest rates and mortality tables in the PPA do not violate the 411(d)(6) rules. If the amendment changes the time for determining interest rates, however, the amendment must meet the requirements of section 1.417(e)-1(d)(10)(ii) of the Income Tax Regulations.

News on 204(h) Notice Requirements

The IRS also released an Employee Plans News news flash (available below) that announces forthcoming proposed regulations regarding 204(h) notice requirements. According to the news flash, IRS and Treasury will soon issue proposed regulations addressing advance notice requirements for amendments required under the PPA. In addition to other guidance, the proposed regulations will provide the following:

• Benefit restrictions. The notice required under section 101(j) of ERISA for amendments restricting benefits in accordance with section 436 will satisfy both the timing and content requirements for a section 204(h) notice.



• Single-sum reductions. A reduced single-sum benefit resulting from an amendment to a traditional defined benefit plan to substitute the PPA-mandated changes in section 417(e)(3) for the pre-PPA section 417(e)(3) assumptions does not require a section 204(h) notice.

Member Action Requested

ERIC will continue to analyze the information provided in these notices and provide updates as needed to members. ERIC members are requested to provide comments, feedback, and concerns regarding these developments to Mike Chittenden, mchittenden@eric.org, of the ERIC staff.

Revenue Ruling 2007-67
Websites:

IRS Employee Plans News

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