Model Amendments for Bifurcated Distribution Options Released (Notice 2017-44)

The IRS has released model amendments for qualified defined benefit plans wishing to offer bifurcated distribution options to participants.

Survivor Annuities

Code Sec. 417 provides rules regarding survivor annuity forms of distribution that must be offered under qualified defined benefit plans. The IRS issued final regulations designed to facilitate bifurcated payments (part annuity and part lump sum). These regulations provide that the minimum present value requirements apply only to the portion of the accrued benefit that is paid in an accelerated form.

Bifurcation Methods

There are two bifurcation methods:

First, a plan may bifurcate a participant’s accrued benefit so that the rules apply to that portion as if it was the participant’s entire accrued benefit. This rule does not impose any requirements with respect to the distribution options for the remaining portion of the accrued benefit; or

Second, the annuity portion of the participant’s accrued benefit must equal the excess of: (a) the participant’s total accrued benefit expressed in that form; over (b) the annuity payable in the form that is actuarially equivalent to the single-sum payment, using the applicable interest rate and the applicable mortality table.

Under the second method, the portion of the participant’s accrued benefit settled by the payment of a specified single-sum amount is implicitly determined as the actuarial equivalent of that single-sum amount.

Model Language Optional

Plan sponsors may use the model language to provide a bifurcated distribution option to participants in accordance with the final regulations. However, a plan that provides for a bifurcated distribution option is not required to use this specific model language. The plan sponsors that currently provided for bifurcated distributions under plan terms that comply with regulations do not need to amend those plan terms. Moreover, use of the model language by an employer that has adopted a pre-approved plan will not cause the plan to fail to be identical to the pre-approved plan.

Notice 2017-44, 2017FED ¶46,338

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