CCA 200851057: A defined contribution plan still owes the financial effect disclosure, even though every option is worth the account

Plain-English summary

A two-sentence answer that splits a disclosure requirement in half and says only one half does any work here.

The regulation behind the question requires a plan to tell a participant two things before they choose how to take their benefit. The first is the financial effect of the election: what the participant will actually receive, in what amounts and on what schedule, under the form they are considering. The second is relative value: how that form compares in worth to the standard form the plan would otherwise pay, so a participant can see whether one option is a better deal than another.

The relative value half exists because of how defined benefit plans work. There the plan promises a stream of payments, and converting that stream into a different shape, a single life annuity against a joint and survivor annuity against a lump sum, requires actuarial assumptions about interest and mortality. Different shapes really can be worth different amounts, and a participant cannot see that from the face of the numbers, so the plan has to spell the comparison out.

None of that applies to a defined contribution plan, and that is the writer's point. In such a plan the participant has an account balance, and whatever is in the account is what the participant gets. Every optional form is simply a different way of paying out the same pot, so, in the writer's words, it is all worth the same thing in a defined contribution plan. The relative value comparison has nothing to compare. But the financial effect disclosure survives, because a participant still needs to be told what the payments under each form will look like even when the forms are equivalent in total value.

The release is written in shorthand between people who already share the context. It does not name the regulation, cite any Code section, or explain what the subject line's "MAP" refers to, and that acronym is left unexpanded here rather than guessed at. The classification places it under section 417, the minimum survivor annuity rules, which is where the relative value disclosure requirement lives. Compare 0851076 in this same batch, which addresses the timing of the relative value notice under section 417(a)(3) for earlier plan years.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: "dc" in lower case throughout for defined contribution; "the reg" in its working shorthand; the double hyphen before "whatever is in the account"; and the subject line spacing in "non- MAP question".

Ruling snapshot

• Question: Does a defined contribution plan have to satisfy the relative value and financial effect disclosure requirements?
• Outcome: Advice given, in brief. Defined contribution plans have to do the financial effect part of the regulation. The relative value comparison is empty in that setting, because whatever is in the account balance is what the participant gets, so every optional form is worth the same thing.
• Key authorities: IRC section 417, by way of the release's UILC classification. The regulation relied on is referred to only as "the reg" and is not named in the document.

Full text (IRS public release)

ID: CCA_2008101514464056 Number: 200851057
Office: ------------------------- Release Date: 12/19/2008

UILC: 417.00-00

From: -----------------
Sent: Wednesday, October 15, 2008 2:46:41 PM
To: ----------------
Cc:
Subject: RE: non- MAP question

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The short answer is that dc plans have to do the financial effect part of the reg, but whatever is in the dc
account balance is what the participant gets. So, it is all worth the same thing in a dc plan -- whatever is
in the account.

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