1 See Institute Memorandum to Pension Committee No. 31-98 and Pension Operations Advisory Committee No.
19-98, dated May 22, 1998.
[10234]
August 28, 1998
TO: PENSION COMMITTEE No. 55-98
PENSION OPERATIONS ADVISORY COMMITTEE No. 40-98
AD HOC COMMITTEE ON OPTIONAL FORMS OF BENEFIT
RE: ICI SUBMITS COMMENTS ON PROPOSED ANTICUTBACK RELIEF
______________________________________________________________________________
The Institute has submitted a comment letter in response to Notice 98-29,1 in which the Internal
Revenue Service proposes relief from the application of the anticutback rule to optional forms of
benefit. Presently, many defined contribution plans provide an unnecessarily complex menu of benefit
payment options because of the current section 411(d)(6) rules. Specifically, the Institute recommended
that the Service permit employers to reduce optional forms of benefit offered in a defined contribution
plan to a choice between a lump sum benefit and one extended form of payment option.
The Institute letter explained that, because a lump sum distribution option provides each
participant with the ability to replicate any other form of benefit, other forms of benefit could be
eliminated without a participant losing a valuable benefit under Section 411(d)(6). The Service, however,
suggested in Notice 98-29 that it would require employers to offer at least one extended form of
payment option to participants in addition to a lump sum option. The Institute urged that the Service
permit employers to select any extended form of payment to satisfy that requirement, regardless of
whether it previously had been offered under the plan, so that each employer could choose a benefit
option most appropriate for its workforce.
The Institute letter also provided two examples of why relief from the anticutback rule is
necessary: (1) the accumulation of multiple payment options that occurs in the prototype plan
environment, and (2) the complexities that arise in administering accrued benefits frozen to preserve
optional forms of benefit under the current rule.
Commenting on alternative approaches to relief set forth in Notice 98-29, the Institute
suggested that, although any relief from the anticutback rule would be useful, the alternative approaches
suggested by the Service would be applicable to only a limited number of plans and would require
complicated rules and tests, making them significantly less desirable than the more general relief set forth
in the notice.
The Institute also recommended that the Service expand the availability of elective transfers,
which would promote benefit portability and enhance participants’ ability to manage their retirement
assets.
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Russell G. Galer
Senior Counsel
Attachment