PRIVATE LETTER RULING RECOGNIZES EXCEPTION TO SECTION 72(T) WHERE DISTRIBUTION METHOD SUBJECT TO CHANGE

June 16, 1992 TO: PENSION MEMBERS NO. 12-92 RE: PRIVATE LETTER RULING RECOGNIZES EXCEPTION TO SECTION 72(t) WHERE DISTRIBUTION METHOD SUBJECT TO CHANGE __________________________________________________________ As you know, the Internal Revenue Service issued two private letter rulings in 1991 holding that a taxpayer could not avoid the ten-percent penalty under section 72(q) of the Code through a systematic withdrawal option under a variable annuity. The Service determined that the taxpayer’s ability to change the distribution pattern in the future precluded use of the exception for substantially equal periodic payments under section 72(q)(2)(D) of the Code. (See Institute Memoranda to Pension Members Nos. 19-91 and 38-91, dated May 16, 1991 and December 2, 1991, respectively.) Attached is a copy of Private Letter Ruling 9223049, which holds that a similar exception under section 72(t)(2)(A)(iv) will apply to annual distributions from a qualified plan over the taxpayer’s life expectancy, notwithstanding the fact that plan participants may elect to withdraw all or part of their entire account balances at any time after termination of employment. The ruling is based on the assumption, however, that the distribution method will not be modified in violation of section 72(t)(4). We will keep you informed of further developments. Kathy D. Ireland Associate Counsel - Pension Attachment