Notice 98-29: optional forms of benefits under defined contribution plans.

• Position: IRS Notice 98-29

On September 11, 1998, Tax Executives Institute submitted the following comments to the Internal Revenue Service on Notice 98-28, relating to optional forms of benefits under defined contribution plans. The comments were prepared under the aegis of the Employee Benefits and Payroll Tax Subcommittee of TEI's Federal Tax Committee, whose respective chairs are Mitchell S. Trager of Georgia-Pacific Corporation and Philip G. Cohen of Unilever United States, Inc. Michael J. Nesbitt of Paychex, Inc. contributed materially to the preparation of the comments.

On May 14, 1998, the Internal Revenue Service issued Notice 98-29, announcing its intent to develop exceptions to the plan amendment prohibition outlined in section 411(d)(6) of the Internal Revenue Code. The notice was published in the INTERNAL REVENUE BULLETIN on June 1, 1998 (1998-22 I.R.B. 8).

Background

Tax Executives Institute is the principal association of corporate tax executives in North America. Our approximately 5,000 members represent 2,800 of the leading corporations in the United States and Canada. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works -- one that is administrable and that taxpayers can comply with in a cost-efficient manner.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by Notice 98-29, relating to optional forms of benefits under defined contribution plans.

TEI commends the Internal Revenue Service and Treasury Department for undertaking this initiative. In issuing Notice 98-29, the government expressed its belief that any relief "should take into account the interests of participants and the practical needs of employers in effectively and efficiently providing retirement benefits for their employees, including the need to adapt plans to changing circumstances." TEI wholeheartedly agrees. Notice 98-29 represents a positive step in reducing complexity, compliance burdens, and plan operation costs for plan sponsors without disadvantaging plan participants. The Institute urges the IRS to issue the relief as soon as possible.

Notice 98-29: Overview

Section 411 of the Internal Revenue Code sets forth minimum vesting standards for employee pension plans. Section 411(d)(6) provides an anti-cutback rule, i.e., an employer may not decrease an accrued benefit by amending the plan. A plan amendment that retroactively (i) eliminates or reduces an early retirement benefit or a retirement-type subsidy (as defined in regulations), or (ii) eliminates an optional form of benefit is treated as reducing accrued benefits. Thus, once benefits have accrued --...