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Prop. Regs. Sec. 1.401(a)(9)-8. Special rules.

Q-1. What distribution rules apply if an employee is a participant in more

than one plan?

A-1. If an employee is a participant in more than one plan, the plans in

which the employee participates are not permitted to be aggregated for

purposes of testing whether the distribution requirements of section

401(a)(9) are met. The distribution of the benefit of the employee under

each plan must separately meet the requirements of section 401(a)(9). For

this purpose, a plan described in section 414(k) is treated as two

separate plans, a defined contribution plan to the extent benefits are

based on an individual account and a defined benefit plan with respect to

the remaining benefits.

Q-2. If an employee's benefit under a plan is divided into separate

accounts (or segregated shares in the case of a defined benefit plan), do

the distribution rules in section 401(a)(9) and these regulations apply

separately to each separate account (or segregated share)?

A-2.

(a) Except as otherwise provided in paragraphs (b) and (c) of this A-

2, if an employee's account under a defined contribution plan plan is

divided into separate accounts (or if an employee's benefit under a

defined benefit plan is divided into segregated shares in the case of

a defined benefit plan) under the plan, the separate accounts (or

segregated shares) will be aggregated for purposes of satisfying the

rules in section 401(a)(9). Thus, except as otherwise provided in

paragraphs (b) and (c) of this A-2, all separate accounts, including

a separate account for nondeductible employee contributions (under

section 72(d)(2)) or for qualified voluntary employee contributions

(as defined in section 219(e)), will be aggregated for purposes of

section 401(a)(9).

(b) If, for lifetime distributions, as of an employee's required

beginning date (or the beginning of any distribution calendar year

beginning after the employee's required beginning date), or in the

case of distributions under section 401(a)(9)(B)(ii) or (iii) and

(iv), as of the end of the year following the year containing the

employee's (or spouse's, where applicable) date of death, the

beneficiaries with respect to a separate account (or segregated share

in the case of a defined benefit plan) under the plan differ from the

beneficiaries with respect to the other separate accounts (or

segregate shares) of the employee under the plan, such separate

account (or segregated share) under the plan need not be aggregated

with other separate accounts (or segregated shares) under the plan in

order to determine whether the distributions from such separate

account (or segregated share) under the plan satisfy section

401(a)(9). Instead, the rules in section 401(a)(9) may separately

apply to such separate account (or segregated share) under the plan.

For example, if, in the case of a distribution described in section

401(a)(9)(B)(iii) and (iv), the only beneficiary of a separate

account (or segregated share) under the plan is the employee's

surviving spouse, and beneficiaries other than the surviving spouse

are designated with respect to the other separate accounts of the

employee, distribution of the spouse's separate account (or

segregated share) under the plan need not commence until the date

determined under the first sentence in A-3(b) of Sec. 1.401(a)(9)-3,

even if distribution of the other separate accounts (or segregated

shares) under the plan must commence at an earlier date. In the case

of a distribution after the death of an employee to which section

401(a)(9)(B)(i) does not apply, distribution from a separate account

(or segregated share) of an employee may be made over a beneficiary's

life expectancy in accordance with section 401(a)(9)(B)(iii) and (iv)

even though distributions from other separate accounts (or segregated

shares) under the plan with different beneficiaries are being made in

accordance with the five-year rule in section 401(a)(9)(B)(ii).

contribution plan is permitted to be used to purchase an annuity

contract with a remaining amount maintained in the separate account.

In that case, the separate account under the plan must be distributed

in accordance with Sec. 1.401(a)(9)-5 in order to satisfy section

401(a)(9) and the annuity payments under the annuity contract must

satisfy Sec. 1.401(a)(9)-6 in order to satisfy section 401(a)(9).

Q-3. What is a separate account or segregated share for purposes of

section 401(a)(9)?

A-3.

(a) For purposes of section 401(a)(9), a separate account in an

individual account is a portion of an employee's benefit determined

by an acceptable separate accounting including allocating investment

gains and losses, and contributions and forfeitures, on a pro rata

basis in a reasonable and consistent matter between such portion and

any other benefits. Further, the amounts of each such portion of the

benefit will be separately determined for purposes of determining the

amount of the required minimum distribution in accordance with Sec.

1.401(a)(9)-5.

(b) A benefit in a defined benefit plan is separated into segregated

shares if it consists of separate identifiable components which may

be separately distributed.

Q-4. Must a distribution that is required by section 401(a)(9) to be made

by the required beginning date to an employee or that is required by

section 401(a)(9)(B)(iii) and (iv) to be made by the required time to a

designated beneficiary who is a surviving spouse be made notwithstanding

the failure of the employee, or spouse where applicable, to consent to a

distribution while a benefit is immediately distributable?

A-4. Yes. Section 411(a)(11) and section 417(e) (see Secs. 1.411(a)(11)-

1(c)(2) and 1.417(e)-1(c)) require employee and spousal consent to certain

distributions of plan benefits while such benefits are immediately

distributable. If an employee's normal retirement age is later than the

required beginning date for the commencement of distributions under

section 401(a)(9) and, therefore, benefits are still immediately

distributable, the plan must, nevertheless, distribute plan benefits to

the participant (or where applicable, to the spouse) in a manner that

satisfies the requirements of section 401(a)(9). Section 401(a)(9) must be

satisfied even though the participant (or spouse, where applicable) fails

to consent to the distribution. In such a case, the plan may distribute in

the form of a qualified joint and survivor annuity (QJSA) or in the form

of a qualified preretirement survivor annuity (QPSA) and the consent

requirements of sections 411(a)(11) and 417(e) are deemed to be satisfied

if the plan has made reasonable efforts to obtain consent from the

participant (or spouse if applicable) and if the distribution otherwise

meets the requirements of section 417. If, because of section

401(a)(11)(B), the plan is not required to distribute in the form of a

QJSA to a participant or a QPSA to a surviving spouse, the plan may

distribute the required minimum distribution amount required at the time

required to satisfy section 401(a)(9) and the consent requirements of

sections 411(a)(11) and 417(e) are deemed to be satisfied if the plan has

made reasonable efforts to obtain consent from the participant (or spouse

if applicable) and if the distribution otherwise meets the requirements of

section 417.

Q-5. Who is an employee's spouse or surviving spouse for purposes of

section 401(a)(9)?

A-5. Except as otherwise provided in A-6(a) (in the case of distributions

of a portion of an employee's benefit payable to a former spouse of an

employee pursuant to a qualified domestic relations order), for purposes

of section 401(a)(9), an individual is a spouse or surviving spouse of an

employee if such individual is treated as the employee's spouse under

applicable state law. In the case of distributions after the death of an

employee, for purposes of determining whether, under the life expectancy

rule in section 401(a)(9)(B)(iii) and (iv), the provisions of section

401(a)(9)(B)(iv) apply, the spouse of the employee is determined as of the

date of death of the employee.

Q-6. In order to satisfy section 401(a)(9), are there any special rules

which apply to the distribution of all or a portion of an employee's

benefit payable to an alternate payee pursuant to a qualified domestic

relations order as defined in section 414(p) (QDRO)?

A-6.

(a) A former spouse to whom all or a portion of the employee's

benefit is payable pursuant to a QDRO will be treated as a spouse

(including a surviving spouse) of the employee for purposes of

section 401(a)(9), including the minimum distribution incidental

benefit requirement, regardless of whether the QDRO specifically

provides that the former spouse is treated as the spouse for purposes

of sections 401(a)(11) and 417.

(b)--

(1) If a QDRO provides that an employee's benefit is to be

divided and a portion is to be allocated to an alternate payee,

such portion will be treated as a separate account (or

segregated share) which separately must satisfy the requirements

of section 401(a)(9) and may not be aggregated with other

separate accounts (or segregated shares) of the employee for

purposes of satisfying section 401(a)(9). Except as otherwise

provided in paragraph (b)(2) of this A-6, distribution of such

separate account allocated to an alternate payee pursuant to a

QDRO must be made in accordance with section 401(a)(9). For

example, in general, distribution of such account will satisfy

section 401(a)(9)(A) if required minimum distributions from such

account during the employee's lifetime begin not later than the

employee's required beginning date and the required minimum

distribution is determined in accordance with Sec. 1.401(a)(9)-

5 for each distribution calendar year using an applicable

distribution period determined under A-4 of Sec. 1.401(a)(9)-5

using the age of the employee in the distribution calendar year

for purposes of using the table in A-4(a)(2) of Sec. 1.401(a)(9)-

5 if applicable or ages of the employee and spousal alternate

payee if their joint life expectancy is longer than the

distribution period using that table. The determination of

whether distribution from such account after the death of the

employee to the alternate payee will be made in accordance with

section 401(a)(9)(B)(i) or section 401(a)(9)(B)(ii) or (iii) and

(iv) will depend on whether distributions have begun as

determined under A-5 or Sec. 1.401(a)(9)-2 (which provides, in

general, that distributions are not treated as having begun

until the employee's required beginning date even though

payments may actually have begun before that date). For example,

if the alternate payee dies before the employee and distribution

of the separate account allocated to the alternate payee

pursuant to the QDRO is to be made to the alternate payee's

beneficiary, such beneficiary may be treated as a designated

beneficiary for purposes of determining the required minimum

distribution required from such account after the death of the

employee if the beneficiary of the alternate payee is an

individual and if such beneficiary is a beneficiary under the

plan or specified to or in the plan. Specification in or

pursuant to the QDRO will also be treated as specification to

the plan.

(2) Distribution of the separate account allocated to an

alternate payee pursuant to a QDRO satisfy the requirements of

section 401(a)(9)(A)(ii) if such account is to be distributed,

beginning not later than the employee's required beginning date,

over the life of the alternate payee (or over a period not

extending beyond the life expectancy of the alternative payee).

Also, if the plan permits the employee to elect whether

distribution upon the death of the employee will be made in

accordance with the five-year rule in section 401(a)(9)(B)(ii)

or the life expectancy rule in section 401(a)(9)(B)(iii) and

(iv) pursuant to A-4(c) of Sec. 1.401(a)(9)-3, such election is

to be made only by the alternate payee for purposes of

distributing the separate account allocated to the alternate

payee pursuant to the QDRO. If the alternate payee dies after

distribution of the separate account allocated to the alternate

payee pursuant to a QDRO has begun (determined under A-5 of Sec.

1.401(a)(9)-2) but before the employee dies, distribution of the

remaining portion of that portion of the benefit allocated to

the alternate payee must be made in accordance with the rules in

Sec. 1.401(a)(9)-5 or Sec. 1.401(a)(9)-6 for distributions

during the life of the employee. Only after the death of the

employee is the amount of the required minimum distribution

determined in accordance with the rules that apply after the

death of the employee.

divided but provides that a portion of an employee's benefit

(otherwise payable to the employee) is to be paid to an alternate

payee, such portion will not be treated as a separate account (or

segregated share) of the employee. Instead, such portion will be

aggregated with any amount distributed to the employee and will be

treated as having been distributed to the employee for purposes of

determining whether the required minimum distribution requirement has

been satisfied with respect to that employee.

Q-7. Will a plan fail to satisfy section 401(a)(9) where it is not legally

permitted to distribute to an alternate payee all or a portion of an

employee's benefit payable to an alternate payee pursuant to a QDRO within

the period specified in section 414(p)(7)?

A-7. A plan will not fail to satisfy section 401(a)(9) merely because it

fails to distribute a required amount during the period in which the issue

of whether a domestic relations order is a QDRO is being determined

pursuant to section 414(p)(7), provided that the period does not extend

beyond the 18-month period described in section 414(p)(7)(E). To the

extent that a distribution otherwise required under section 401(a)(9) is

not made during this period, this amount and any additional amount accrued

during this period will be treated as though it is not vested during the

period and any distributions with respect to such amounts must be made

under the relevant rules for nonvested benefits described in either A-8 of

Sec. 1.401(a)(9)-5 or A-6 of Sec. 1.401(a)(9)-6.

Q-8. Will a plan fail to satisfy section 401(a)(9) where an individual's

distribution from the plan is less than the amount otherwise required to

satisfy section 401(a)(9) under Sec. 1.401(a)(9)- 5 or Sec. 1.401(a)(9)-6

because distributions were being paid under an annuity contract issued by

a life insurance company in state insurer delinquency proceedings and have

been reduced or suspended by reasons of such state proceedings?

A-8. A plan will not fail to satisfy section 401(a)(9) merely because an

individual's distribution from the plan is less than the amount otherwise

required to satisfy section 401(a)(9) under Sec. 1.401(a)(9)-5 or Sec.

1.401(a)(9)-6 because distributions were being paid under an annuity

contract issued by a life insurance company in state insurer delinquency

proceedings and have been reduced or suspended by reasons of such state

proceedings. To the extent that a distribution otherwise required under

section 401(a)(9) is not made during the state insurer delinquency

proceedings, this amount and any additional amount accrued during this

period will be treated as though it is not vested during the period and

any distributions with respect to such amounts must be made under the

relevant rules for nonvested benefits described in either A-8 of Sec.

1.401(a)(9)-5 or A-6 of Sec. 1.401(a)(9)-6.

Q-9. Will a plan fail to qualify as a pension plan within the meaning of

section 401(a) solely because the plan permits distributions to commence

to an employee on or after April 1 of the calendar year following the

calendar year in which the employee attains age 70 1/2 even though the

employee has not retired or attained the normal retirement age under the

plan as of the date on which such distributions commence?

A-9. No. A plan will not fail to qualify as a pension plan within the

meaning of section 401(a) solely because the plan permits distributions to

commence to an employee on or after April 1 of the calendar year following

the calendar year in which the employee attains age 70 1/2 even though the

employee has not retired or attained the normal retirement age under the

plan as of the date on which such distributions commence. This rule

applies without regard to whether or not the employee is a 5-percent owner

with respect to the plan year ending in the calendar year in which

distributions commence.

Q-10. Is the distribution of an annuity contract a distribution for

purposes of section 401(a)(9)?

A-10. No. The distribution of an annuity contract is not a distribution

for purposes of section 401(a)(9).

Q-11. Will a payment by a plan after the death of an employee fail to be

treated as a distribution for purposes of section 401(a)(9) solely because

it is made to an estate or a trust?

A-11. A payment by a plan after the death of an employee will not fail to

be treated as a distribution for purposes of section 401(a)(9) solely

because it is made to an estate or a trust. As a result, the estate or

trust which receives a payment from a plan after the death of an employee

need not distribute the amount of such payment to the beneficiaries of the

estate or trust in accordance with section 401(a)(9)(B). However, pursuant

to A-3 of Sec. 1.401(a)(9)-4, distribution to the estate must satisfy the

five-year rule in section 401(a)(9)(B)(iii) if the distribution to the

employee had not begun (as defined in A-6 of Sec. 1.401(a)(9)-2) as of the

employee's date of death, and pursuant to A-3 of Sec. 1.401(a)(9)-4, an

estate may not be a designated beneficiary. See A-5 and A-6 of Sec.

1.401(a)(9)-4 for provisions under which beneficiaries of a trust with

respect to the trust's interest in an employee's benefit are treated as

having been designated as beneficiaries of the employee under the plan.

Q-12. Will a plan fail to satisfy section 411 if the plan is amended to

eliminate benefit options that do not satisfy section 401(a)(9)?

A-12. Nothing in section 401(a)(9) permits a plan to eliminate for all

participants a benefit option that could not otherwise be eliminated

pursuant to section 411(d)(6). However, a plan must provide that,

notwithstanding any other plan provisions, it will not distribute benefits

under any option that does not satisfy section 401(a)(9). See A-3 of Sec.

1.401(a)(9)-1. Thus, the plan, notwithstanding section 411(d)(6), must

prevent participants from electing benefit options that do not satisfy

section 401(a)(9).

Q-13. Is a plan disqualified merely because it pays benefits under a

designation made before January 1, 1984, in accordance with section

242(b)(2) of the Tax Equity and Fiscal Responsibility Act (TEFRA)?

A-13. No. Even though the distribution requirements added by TEFRA were

retroactively repealed by the Tax Reform Act of 1984 (TRA of 1984), the

transitional election rule in section 242(b) of TEFRA was preserved.

Satisfaction of the spousal consent requirements of section 417(a) and (e)

(added by the Retirement Equity Act of 1984) will not be considered a

revocation of the pre-1984 designation. However, sections 401(a)(11) and

417 must be satisfied with respect to any distribution subject to those

sections. The election provided in section 242(b) of TEFRA is hereafter

referred to as a section 242(b)(2) election.

Q-14. In the case in which an amount is transferred from one plan

(transferor plan) to another plan (transferee plan), may the transferee

plan distribute the amount transferred in accordance with a section

242(b)(2) election made under either the transferor plan or under the

transferee plan?

A-14.

(a) In the case in which an amount is transferred from one plan to

another plan, the amount transferred may be distributed in accordance

with a section 242(b)(2) election made under the transferor plan if

the employee did not elect to have the amount transferred and if the

amount transferred is separately accounted for by the transferee

plan. However, only the benefit attributable to the amount

transferred, plus earnings thereon, may be distributed in accordance

with the section 242(b)(2) election made under the transferor plan.

If the employee elected to have the amount transferred, the transfer

will be treated as a distribution and rollover of the amount

transferred for purposes of this section.

(b) In the case in which an amount is transferred from one plan to

another plan, the amount transferred may not be distributed in

accordance with a section 242(b)(2) election made under the

transferee plan. If a section 242(b)(2) election was made under the

transferee plan, the amount transferred must be separately accounted

for. If the amount transferred is not separately accounted for under

the transferee plan, the section 242(b)(2) election under the

transferee plan is revoked and section 401(a)(9) will apply to

subsequent distributions by the transferee plan.

1(b), will be treated as a transfer for purposes of the section

242(b)(2) election.

Q-15. If an amount is distributed by one plan (distributing plan) and

rolled over into another plan (receiving plan), may the receiving plan

distribute the amount rolled over in accordance with a section 242(b)(2)

election made under either the distributing plan or the receiving plan?

A-15. No. If an amount is distributed by one plan and rolled over into

another plan, the receiving plan must distribute the amount rolled over in

accordance with section 401(a)(9) whether or not the employee made a

section 242(b)(2) election under the distributing plan. Further, if the

amount rolled over was not distributed in accordance with the election,

the election under the distributing plan is revoked and section 401(a)(9)

will apply to all subsequent distributions by the distributing plan.

Finally, if the employee made a section 242(b)(2) election under the

receiving plan and such election is still in effect, the amount rolled

over must be separately accounted for under the receiving plan and

distributed in accordance with section 401(a)(9). If amounts rolled over

are not separately accounted for, any section 242(b)(2) election under the

receiving plan is revoked and section 401(a)(9) will apply to subsequent

distributions by the receiving plan.

Q-16. May a section 242(b)(2) election be revoked after the date by which

distributions are required to commence in order to satisfy section

401(a)(9) and this section of the regulations?

A-16. Yes. A section 242(b)(2) election may be revoked after the date by

which distributions are required to commence in order to satisfy section

401(a)(9) and this section of the regulations. However, if the section

242(b)(2) election is revoked after the date by which distributions are

required to commence in order to satisfy section 401(a)(9) and this

section of the regulations and the total amount of the distributions which

would have been required to be made prior to the date of the revocation in

order to satisfy section 401(a)(9), but for the section 242(b)(2)

election, have not been made, the trust must distribute by the end of the

calendar year following the calendar year in which the revocation occurs

the total amount not yet distributed which was required to have been

distributed to satisfy the requirements of section 401(a)(9) and continue

distributions in accordance with such requirements.

[66 FR 3928, January 17, 2001; corrected 66 FR 10981, February 21, 2001]