CCA 200851076: Two-step relative value notice for older plan years, and no model language to offer

Plain-English summary

A colleague asked about the notice a pension plan must give before paying benefits, and this is the answer, offered as the writer's understanding rather than a settled position.

The background is that a participant in a defined benefit plan usually has a choice of forms in which to take the benefit, such as a single life annuity or a joint and survivor annuity paying less each month but continuing to a spouse. Because those choices are not worth the same, the plan must explain them, including their relative values, before the annuity starting date. The explanation has to arrive inside a window: not too close to the starting date, so the participant has time to consider it, and not so far ahead that it is forgotten.

The writer's answer describes an alternative way to satisfy that timing for plan years beginning in 2006 or earlier. Instead of a single notice inside the window, the participant may be given a full description of the material features of the optional forms of benefit more than 90 days before the annuity starting date, the summary plan description being the example offered, and then a summary notice of the available forms no less than 30 and no more than 90 days before that date. The regulation cited for this is Treas. Reg. section 1.411(a)-11(c)(2)(iii)(B). The structure is sensible: the detailed material can live in the document the participant already has, while the short reminder does the work of prompting a decision at the right time.

The second half is about the medium. Under Treas. Reg. section 1.411(a)-11(f), the notice and consent required by the notice provision must be given on a written paper document. That is a real constraint for a plan administrator who would rather send everything by email. It changed for notices provided after the beginning of 2007, when Treas. Reg. section 1.401(a)-21 began to allow electronic media if certain requirements are met. The release does not list those requirements, so a reader has to go to the regulation itself; they concern such things as the recipient's effective ability to access the electronic medium and the right to request a paper copy. The date is the practical takeaway: which rule applies depends on when the notice went out.

The last point is an absence. The writer is not aware of any model language the Service has issued for this notice, and suggests that a commercial form provider might have some, naming one. That is the document's own suggestion and is reproduced here because it is part of the text; it is not an IRS endorsement, and this corpus does not draw material from commercial providers. The writer closes by copying a colleague for further thoughts, which marks the answer as a first pass rather than a final one.

This is a clean digital release rather than a scan, so no OCR correction was needed. Kept as released: "to see if see has any other thoughts," with "see" where "she" is evidently meant; the run-together "-to see"; the regulations cited without the "Treas. Reg." prefix; and the date written as "1/1/07."

Ruling snapshot

• Question: How may the relative value notice be timed for plan years beginning in 2006 or earlier, must it be on paper, and has the Service issued model language?
• Outcome: Advice given as the writer's understanding. In the alternative, the participant may receive a full description of the material features of the optional forms of benefit more than 90 days before the annuity starting date, for example in a summary plan description, plus a summary notice of the available forms between 30 and 90 days before that date, under Treas. Reg. section 1.411(a)-11(c)(2)(iii)(B). Under Treas. Reg. section 1.411(a)-11(f) the notice and consent must be on a written paper document, but for notices provided after January 1, 2007, Treas. Reg. section 1.401(a)-21 allows electronic media if certain requirements are met. The writer is not aware of any model language issued by the Service.
• Key authorities: IRC section 417(a)(3); Treas. Reg. section 1.411(a)-11(c)(2)(iii)(B), 1.411(a)-11(c)(2) and 1.411(a)-11(f); Treas. Reg. section 1.401(a)-21.

Full text (IRS public release)

ID: CCA_2008091108313156 Number: 200851076
Office: ------------------------- Release Date: 12/19/2008

UILC: 401.00-00; 411.00-00

From: -----------------
Sent: Thursday, September 11, 2008 8:31:35 AM
To: ---------------------
Cc: ---------------------------------------
Subject: RE: notice on relative value 417(a)(3)

My understanding is that for plan years beginning in 2006 or before, in the alternative, the participant may be provided with a full description of the material features of the optional forms of benefit available under the plan more than 90 days before the annuity starting date (e.g., in a summary plan description) and provided with a summary notice of the available forms of benefit within the period no less than 30 days and no more than 90 days before the annuity starting date under 1.411(a)-11(c)(2)(iii)(B). Under 1.411(a)-11(f), the notice and consent required under 1.411(a)-11(c)(2) must be given on a written paper document. However, for notices provided after 1/1/07, 1.401(a)-21 allows the use of electronic media if certain requirements are met. I am not aware of any model language that we have issued. Perhaps one of the big form providers, like Corbel, has issued model language.

I am copying ------- -to see if see has any other thoughts.

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