June 30, 2004
IRS Delays Relative Value Regulations with Limited Exception
On June 30, the U.S. Department of Treasury (Treasury Department) and the Internal Revenue Service (IRS) released Announcement 2004-58 delaying the general effective date of the "relative value regulations". With the limited exception described below, the disclosure requirement will now apply to annuity starting dates beginning on or after February 1, 2006. The relative value regulations set forth information required to be explained to pension plan participants regarding the optional forms of benefit offered by the plan. The annuity starting date is generally the date on which payments from the plan are considered to have commenced.
The current effective date (for annuity starting dates on or after October 1, 2004,) was retained for certain optional forms of benefit such as single sums, distributions in the form of partial single sums in combination with annuities, and installment payment options, if they are less valuable than the qualified joint and survivor annuity (QJSA). The October 1 effective date would be applicable in many cases on July 1, 2004, because disclosures are required 30 to 90 days before the annuity's starting date.
The Treasury Department and the IRS, as well as key Congressional members, recognized the importance of the delay to coordinate the effective date with the potential effective date of recently proposed regulations that will permit elimination of certain optional forms of benefit in defined benefit plans. Treasury and the IRS understand that many plan sponsors will be expected to engage in a thorough review of all of the optional forms of benefit under their plans following publication of these regulations in final form and it would be inefficient for plans to incur the costs of two extensive analyses in succession, rather than a single analysis of optional forms that might serve for both purposes.
The announcement also provided much-needed clarification of the most valuable benefit issue under the regulations. Regulations currently indicate that the QJSA must be the most valuable form of benefit for a married participant. Announcement 2004-58 notes that the Treasury Department and the IRS intend to issue regulations, effective retroactively, clarifying that a plan will not fail to satisfy the most valuable benefit requirement merely because certain present value calculations cause an optional form of benefit to be more valuable than the QJSA.
A more detailed summary of Announcement 2004-58 will be posted on the Council's web site. For more information, contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.
The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.