Letting retirees change their survivor-benefit choice within 90 days of the first payment does not break the required minimum distribution rules

Plain-English summary

A state administers several governmental defined benefit pension plans in which retirees pick a survivor benefit (for example, joint-and-100-percent or single-life) at retirement, and that choice was irrevocable. The state passed a law giving participants up to 90 days after their first monthly payment to prospectively change that survivor election, but made the change effective only after getting IRS confirmation that it complies with federal tax law. The plans asked the IRS to rule that this 90-day window does not violate the required minimum distribution rules of section 401(a)(9), which govern how and when retirement benefits must be paid out. The IRS agreed. Governmental plans are treated as satisfying section 401(a)(9) if they follow a reasonable, good-faith interpretation of it, and allowing a one-time survivor-election change in the first 90 days is consistent with that standard. So the new option does not cause the plans to fail the minimum distribution requirements.

Ruling snapshot

• Question: Does letting participants change their survivor-benefit election within 90 days of the first retirement payment violate the minimum distribution rules of § 401(a)(9)?
• Outcome: Approved (no violation of § 401(a)(9))
• Key authorities: IRC § 401(a)(9), § 414(d); Treas. Reg. § 1.401(a)(9)-1, Q&A-2(d)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202143002 Third Party Communication: None
Release Date: 10/29/2021 Date of Communication: Not Applicable
Index Number: 401.06-00
Person To Contact:
------------------------------------------------------------ ------------------, ID No. -----------------
------------ Telephone Number:
--------------------------- ---------------------
--------------------- Refer Reply To:
---------------------------------- CC:EEE:EB:QP4
PLR-102960-21
In Re: ---------------------------------------------------- Date:
------------ August 03, 2021

Legend

State X = ---------------------------
Plan Administrator Y = ----------------------------------------------------------------
Bill Z = ---------------------------------------

Dear -------------:

This is in response to your letter dated February 1, 2021, and subsequent
correspondence dated June 18, 2021, submitted on your behalf by your authorized
representative, in which you request a ruling under § 401(a)(9) of the Internal Revenue
Code.

The following facts and representations have been submitted under penalties of perjury
in support the of the rulings requested:

Plan Administrator Y administers retirement plans that are sponsored by State X on
behalf of employees of State X. This ruling request involves eight defined benefit plans.
Distributions under the plans are required to begin no later than the required beginning
date (as that term is defined in § 401(a)(9)(C)). The laws of State X require that unless
distributed in a lump sum, a participant’s entire interest in any of the plans must be
distributed over the participant’s life or the lives of the member and a designated
beneficiary, or over a period not extending beyond the life expectancy of the participant
or of the participant and a designated beneficiary.

Participants in the plans may select one of the following four survivorship benefits upon
their retirement: (1) Joint and 100%, a full survivorship benefit; (2) Joint and 66.67%, a
two-thirds survivorship benefit; (3) Joint and 50%, a one-half survivorship benefit; and
PLR-102960-21 2

(4) Single Life, with no survivorship benefit. Currently, a participant’s survivorship
benefit election is irrevocable.

Plan Administrator Y provides benefit estimates to participants in the plans before their
retirement. Estimates may differ from the actual benefits paid to a participant due to the
actual retirement date or survivorship option being different from that used to calculate
the estimate. In some cases, Plan Administrator Y receives additional salary information
after the participant has retired but before the finalization of the benefit amount resulting
in a final benefit amount different than the benefit estimate.

When Plan Administrator Y receives additional information about a participant’s
compensation or service credit, the laws of State X require Plan Administrator Y to
recalculate the benefit amount. In most cases, the recalculation is finalized shortly after
the participant’s retirement.

State X enacted Bill Z in 2020 allowing participants in any of the plans up to 90 calendar
days after the receipt of their first monthly retirement allowance to prospectively change
their survivorship benefit election. If a participant changes the survivorship election, the
change is effective the first day of the following month. The provisions of Bill Z become
effective following the receipt of a favorable private letter ruling from the Internal
Revenue Service that the limited ability to change a survivorship benefit election during
the 90-day window conforms with federal law.

Based on the foregoing facts and representations, you have requested a ruling that the
minimum distribution requirements of § 401(a)(9) are not violated due to Bill Z, which
allows current and future participants in the eight affected defined benefit plans
administered by Plan Administrator Y to change their survivor option election within 90
days after receipt of their first retirement allowance.

Law

Section 414(d) provides that the term “governmental plan” means a plan established
and maintained for its employees by the Government of the United States, by the
government of any State or political subdivision thereof, or by any agency or
instrumentality of any of the foregoing.

Section 401(a)(9)(A) provides, in general, that a trust will not be considered qualified
unless the plan provides that the entire interest of each employee (i) will be distributed
to such employee not later than the required beginning date, or (ii) will be distributed,
beginning not later than the required beginning date, over the life of such employee or
over the lives of such employee and a designated beneficiary or over a period not
extending beyond the life expectancy of such employee or the life expectancy of such
employee and a designated beneficiary.
PLR-102960-21 3

Section 1.401(a)(9)-1, Q&A-2(d) of the Income Tax Regulations provides that a
governmental plan (within the meaning of section 414(d)) is treated as having complied
with § 401(a)(9) for all years to which § 401(a)(9) applies to the plan if the plan complies
with a reasonable and good faith interpretation of § 401(a)(9).

Ruling

In the present case, you have represented that the plans established and maintained by
State X on behalf of certain employees of State X are governmental plans (as defined in
§ 414(d)). Accordingly, those plans are treated as having complied with § 401(a)(9) for
all years to which § 401(a)(9) applies to the plan if the plan complies with a reasonable,
good faith interpretation of § 401(a)(9).

A participant’s option to change the survivorship election within the first 90 days of
receiving the first benefit payment does not cause the plans to fail to satisfy the
underlying requirements of § 401(a)(9)(A). Thus, the plans comply with a reasonable,
good faith interpretation of § 401(a)(9)(A). Accordingly, the minimum distribution
requirements of § 401(a)(9) are not violated due to Bill Z, which allows current and
future participants in the plans administered by Plan Administrator Y to change their
survivorship benefit election within 90 days after receipt of their first retirement
allowance.

The rulings contained in this letter are based upon information and representations
submitted by your personal representative and accompanied by a penalties of perjury
statement executed by an appropriate party, as specified in Rev. Proc. 2021-1, 2021-1
I.R.B. 1, § 7.01(16)(b). This office has not verified any of the material submitted in
support of the request for rulings, and such material is subject to verification on
examination. The Associate office will revoke or modify a letter ruling and apply the
revocation retroactively if there has been a misstatement or omission of controlling
facts; the facts at the time of the transaction are materially different from the controlling
facts on which the ruling was based; or, in the case of a transaction involving a
continuing action or series of actions, the controlling facts change during the course of
the transaction. See Rev. Proc. 2021-1, § 11.05.

Except as expressly provided above, no opinion is expressed or implied concerning the
federal income tax consequences of any other aspects of any transaction or item of
income described in this letter ruling.

This letter is directed only to the taxpayer requesting it. Section 6110(k)(3) provides that
it may not be used or cited as precedent.
PLR-102960-21 4

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representatives.

                                       Sincerely,




                                       Laura B. Warshawsky
                                       Branch Chief
                                       Qualified Plans Branch 1
                                       Office of Associate Chief Counsel
                                       (Employee Benefits, Exempt Organizations,
                                       and Employment Taxes)

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