Final Optional Benefit Regulations Provide Administrative Simplification.

The Internal Revenue Service has issued final regulations on the special rules relating to optional forms of benefits under defined contribution plans. Tax Executives Institute filed comments on the proposed section 411(d)(6) regulations on August 1, 2000. TEI's comments on the proposed regulations, which were prepared under the aegis of the Federal Employee Benefits Subcommittee, are reprinted in this issue, beginning on page 393. (The Institute also filed comments on an earlier notice, generally supporting many of the suggested changes incorporated in the proposed regulations; those comments were reprinted in the September-October 1998 issue of The Tax Executive.)

According to TEI President Betty M. Wilson, the final regulations contain a few victories for taxpayers and administrative simplification.

First, the IRS responded favorably to the recommendation from TEI and others to permit plans to eliminate all optional forms of benefit except the lump-sum option. The IRS stated, "After considering these comments regarding the desirability of requiring the retention of an extended payment form, and in light of the ability of participants to replicate any extended payment form that a defined contribution plan may offer by rolling over a single-sum distribution to an IRA, the IRS and the Treasury Department have determined that any advantages of requiring the retention of an extended payment form are outweighed by the countervailing considerations."

Accordingly, the final regulations generally provide that a defined contribution plan does not violate the requirements of section 411(d)(6) merely because the plan is amended to eliminate or restrict the ability of a participant to receive payment of accrued benefits under a particular optional form of benefit if, after the plan amendment is effective with respect to the participant, the alternative forms of payment available to the participant include payment in a single-sum distribution form that is otherwise identical to the optional form of benefit that is being eliminated or restricted.

"The Institute has actively been following this issue for several years," Ms. Wilson said, "and we are extremely pleased that the IRS and...