Sec. 1.401(a)(9)-6 Required minimum distributions for defined benefit plans and annuity contracts.
(a) General rules―
(1) In general. In order to satisfy section 401(a)(9), except as otherwise provided in this section, distributions of the employee's entire interest under a defined benefit plan or under an annuity contract must be paid in the form of periodic annuity payments for the employee's life (or the joint lives of the employee and beneficiary) or over a period certain that does not exceed the maximum length of the period certain determined in accordance with paragraph (c) of this section. The interval between payments for the annuity must not exceed one year and, except as otherwise provided in this section, must be uniform over the entire distribution period. Once payments have commenced over a period, the period may only be changed in accordance with paragraph (n) of this section. Life (or joint and survivor) annuity payments must satisfy the minimum distribution incidental benefit requirements of paragraph (b) of this section. Except as otherwise provided in this section (for example, permitted increases described in paragraph (o) of this section), all payments (whether paid over an employee's life, joint lives, or a period certain) also must be nonincreasing.
(2) Definition of life annuity. An annuity described in this section may be a life annuity (or joint and survivor annuity) with a period certain, provided that the life annuity (or joint and survivor annuity, if applicable) and the period certain payments each meet the requirements of paragraph (a)(1) of this section. For purposes of this section, if distributions are permitted to be made over the lives of the employee and the designated beneficiary, references to a life annuity include a joint and survivor annuity.
(3) Annuity commencement―
(i) First payment and frequency. Annuity payments must commence on or before the employee's required beginning date (within the meaning of §1.401(a)(9)-2(b)). The first payment, which must be made on or before the employee's required beginning date, must be the payment that is required for one payment interval. The second payment need not be made until the end of the next payment interval even if that payment interval ends in the next calendar year. Similarly, if the employee dies before the required beginning date, and distributions are to be made in accordance with section 401(a)(9)(B)(iii) (or, if applicable, section 401(a)(9)(B)(iv)), then the first payment, which must be made on or before the last day of the calendar year following the calendar year in which the employee died (or the date determined under §1.401(a)(9)-3(d), if applicable), must be the payment that is required for one payment interval. Payment intervals are the periods for which payments are received, for example, bimonthly, monthly, semi-annually, or annually. All benefit accruals as of the last day of the first distribution calendar year must be included in the calculation of the amount of annuity payments for payment intervals ending on or after the employee's required beginning date.
(ii) Example. A defined benefit plan (Plan X) provides monthly annuity payments for the life of unmarried participants with a 10-year period certain. An unmarried, retired participant A in Plan X attains age 73 in 2025. A’s monthly annuity payment under this single life annuity based on accruals through December 31, 2025, is $500. In order to meet the requirements of this paragraph (a)(3), the first monthly payment of $500 must be made on behalf of A on or before April 1, 2026, and monthly payments must continue to be made thereafter for the life of A (or over the 10-year period certain, if longer).
(4) Single-sum distributions―
(i) In general. In the case of a single-sum distribution of an employee's entire accrued benefit during a distribution calendar year, the portion of the distribution that is the required minimum distribution for the distribution calendar year (and thus not an eligible rollover distribution pursuant to section 402(c)(4)(B)) is determined using the rule in either paragraph (a)(4)(ii) or (iii) of this section.
(ii) Treatment as individual account. The portion of the single-sum distribution that is a required minimum distribution is determined by treating the single-sum-distribution as a distribution from an individual account plan and treating the amount of the single-sum distribution as the employee's account balance as of the end of the relevant valuation calendar year. If the single-sum distribution is being made in the calendar year that includes the required beginning date and the required minimum distribution for the employee's first distribution calendar year has not been distributed, the portion of the single-sum distribution that represents the required minimum distribution for the employee's first and second distribution calendar years is not eligible for rollover.
(iii) Treatment as first annuity payment. The portion of the single-sum distribution that is a required minimum distribution is permitted to be determined by expressing the employee's benefit as an annuity that would satisfy this section with an annuity starting date that is the first day of the distribution calendar year for which the required minimum distribution is being determined, and treating one year of annuity payments as the required minimum distribution for that year (and therefore, not an eligible rollover distribution). If the single-sum distribution is being made in the calendar year that includes the required beginning date, and the required minimum distribution for the employee's first distribution calendar year has not been made, then the benefit must be expressed as an annuity with an annuity starting date that is the first day of the first distribution calendar year, and the payments for the first two distribution calendar years are treated as required minimum distributions (and therefore not eligible rollover distributions).
(5) Death benefits. The rule in paragraph (a)(1) of this section prohibiting increasing payments under an annuity applies to payments made upon the death of an employee. However, the payment of an ancillary death benefit described in this paragraph (a)(5) may be disregarded in determining whether annuity payments are increasing, and it can be excluded in determining an employee's entire interest. A death benefit with respect to an employee's benefit is an ancillary death benefit for purposes of this paragraph (a) if--
(i) It is not paid as part of the employee's accrued benefit or under any optional form of the employee's benefit; and
(ii) The death benefit, together with any other potential payments with respect to the employee's benefit that may be provided to a survivor, satisfies the incidental benefit requirement of §1.401-1(b)(1)(i).
(6) Separate treatment of separate identifiable components. If an employee’s benefit under a defined benefit plan or annuity contract consists of separate identifiable components that are subject to different distribution elections, then the rules of this section may be applied separately to each of those components.
(7) Additional guidance. Additional guidance regarding how distributions under a defined benefit plan must be paid in order to satisfy section 401(a)(9) may be issued by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin. See §601.601(d) of this chapter.
(b) Application of incidental benefit requirement―
(1) Life annuity for employee. If the employee's benefit is paid in the form of a life annuity for the life of the employee satisfying section 401(a)(9) without regard to the minimum distribution incidental benefit requirement under section 401(a)(9)(G) (MDIB requirement), then the MDIB requirement will be satisfied.
(2) Joint and survivor annuity―
(i) Determination of designated beneficiary. If the employee's benefit is paid in the form of a life annuity for the lives of the employee and a designated beneficiary, then the designated beneficiary is determined as of the annuity starting date.
(ii) Spouse beneficiary. If the employee's sole beneficiary is the employee's spouse and the distributions satisfy section 401(a)(9) without regard to the MDIB requirement, the distributions to the employee will be deemed to satisfy the MDIB requirement. For example, if an employee's benefit is being distributed in the form of a joint and survivor annuity for the lives of the employee and the employee's spouse and the spouse is the sole beneficiary of the employee, the amount of the periodic payment payable to the spouse would not violate the MDIB requirement if it were 100 percent of the annuity payment payable to the employee, regardless of the difference in the ages between the employee and the employee's spouse.
(iii) Joint and survivor annuity, non-spouse beneficiary. If distributions commence in the form of a joint and survivor annuity for the lives of the employee and a beneficiary other than the employee's spouse, and the employee is the applicable age or older on the employee’s birthday in the calendar year that includes the annuity starting date, then the MDIB requirement will not be satisfied as of the date distributions commence unless, under the distribution option, the annuity payments satisfy the conditions of this paragraph (b)(2)(iii). The periodic annuity payments to the survivor satisfy this paragraph (b)(2)(iii) only if, at any time on or after the employee's required beginning date, those payments do not exceed the applicable percentage of the periodic annuity payment payable to the employee using the table in this paragraph (b)(2)(iii). The applicable percentage is based on the employee/beneficiary age difference, which is equal to the excess of the age of the employee over the age of the beneficiary based on their ages on their birthdays in the calendar year that includes the annuity starting date. In the case of an annuity that provides for increasing payments, the requirement of this paragraph (b)(2)(iii) will not be violated merely because benefit payments to the beneficiary increase, provided the increase is determined in the same manner for the employee and the beneficiary. See paragraph (k)(2) of this section for rules regarding the application of the MDIB requirement in the case of annuity payments with an annuity starting date that is before the calendar year in which an employee attains the applicable age.
Table 1 to paragraph (b)(2)(iii)
Employee/beneficiary age difference | Applicable percentage |
|---|---|
10 years or less | 100 |
11 | 96 |
12 | 93 |
13 | 90 |
14 | 87 |
15 | 84 |
16 | 82 |
17 | 79 |
18 | 77 |
19 | 75 |
20 | 73 |
21 | 72 |
22 | 70 |
23 | 68 |
24 | 67 |
25 | 66 |
26 | 64 |
27 | 63 |
28 | 62 |
29 | 61 |
30 | 60 |
31 | 59 |
32 | 59 |
33 | 58 |
34 | 57 |
35 | 56 |
36 | 56 |
37 | 55 |
38 | 55 |
39 | 54 |
40 | 54 |
41 | 53 |
42 | 53 |
43 | 53 |
44 and greater | 52 |
(3) Period certain and annuity features. If a distribution form includes a period certain, the amount of the annuity payments payable to the beneficiary need not be reduced during the period certain, but in the case of a joint and survivor annuity with a period certain, the amount of the annuity payments payable to the beneficiary must satisfy paragraph (b)(2)(iii) of this section after the expiration of the period certain.
(4) Deemed satisfaction of incidental benefit rule. Except in the case of distributions with respect to an employee's benefit that include an ancillary death benefit described in paragraph (a)(5) of this section, to the extent the incidental benefit requirement of §1.401-1(b)(1)(i) requires a distribution, that requirement is deemed to be satisfied if distributions satisfy the MDIB requirement of this paragraph (b). If the employee's benefits include an ancillary death benefit described in paragraph (a)(5) of this section, the benefits (including the ancillary death benefit) must be distributed in accordance with the incidental benefit requirement described in §1.401-1(b)(1)(i) and the benefits (excluding the ancillary death benefit) must also satisfy the MDIB requirement of this paragraph (b).
(c) Period certain annuity―
(1) Distributions commencing during the employee's life. If the employee is the applicable age or older on the employee’s birthday in the calendar year that includes the annuity starting date, then the period certain is not permitted to exceed the applicable denominator for the calendar year that includes the annuity starting date that would apply pursuant to §1.401(a)(9)-5(c) if the plan were a defined contribution plan. However, that applicable denominator is determined taking into account the rules of §1.401(a)(9)-5(c)(2) (relating to a spouse who is more than 10 years younger than the employee) only if the period certain is not provided in conjunction with a life annuity under paragraph (a)(2) of this section. See paragraph (k) of this section for the rule for annuity payments with an annuity starting date that is before the calendar year in which the employee attains the applicable age.
(2) Distributions commencing after the employee's death. If the employee dies before the required beginning date and annuity distributions commence after the death of the employee under the life expectancy rule (under section 401(a)(9)(B)(iii) or (iv)), the period certain for any distributions commencing after death may not exceed the applicable denominator that would apply pursuant to §1.401(a)(9)-5(d)(2) for the calendar year that includes the annuity starting date if the plan were a defined contribution plan.
(d) Use of annuity contract―
(1) In general. A plan will not fail to satisfy section 401(a)(9) merely because distributions are made from an annuity contract purchased from an insurance company that is licensed to do business under the laws of the State in which the contract is sold, provided that the payments satisfy the requirements of this section. Except in the case of a qualifying longevity annuity contract (QLAC) described in paragraph (q) of this section, if the annuity contract is purchased after the required beginning date, then the first payment interval must begin on or before the purchase date and the payment that is made at the end of that payment interval is the amount required for one payment interval. If the payments actually made under the annuity contract do not meet the requirements of this section, the plan fails to satisfy section 401(a)(9). See also paragraph (o) of this section permitting certain increases under annuity contracts.
(2) Applicability of section 401(a)(9)(H)―
(i) Annuity contract subject to section 401(a)(9)(H). If an annuity contract is purchased under a defined contribution plan, or the annuity contract is otherwise subject to section 401(a)(9)(H), payments under that annuity contract cannot extend past the calendar year described in §1.401(a)(9)-5(e).
(ii) Determination of an eligible designated beneficiary. If an annuity contract is described in paragraph (d)(2)(i) of this section, then the determination of whether a beneficiary is an eligible designated beneficiary under section 401(a)(9)(E)(ii), is made as of the annuity starting date. For example, if, as of the annuity starting date, the employee’s beneficiary under the contract is the employee’s spouse, then the spouse is treated as an eligible designated beneficiary for purposes of applying the rules of section 401(a)(9)(H) even if the employee and spouse are subsequently divorced.
(e) Treatment of additional accruals―
(1) General rule. If additional benefits accrue in a calendar year after the employee's first distribution calendar year, distribution of the amount that accrues in that later calendar year must commence in accordance with paragraph (a) of this section beginning with the first payment interval ending in the calendar year following the calendar year in which that amount accrues.
(2) Administrative delay. A plan will not fail to satisfy this section merely because there is an administrative delay in the commencement of the distribution of the additional benefits accrued in a calendar year, provided that--
(i) The payment commences no later than the end of the first calendar year following the calendar year in which the additional benefit accrues; and
(ii) The total amount paid during that first calendar year with respect to those additional benefits is no less than the total amount that was required to be paid during that year under paragraph (e)(1) of this section.
(f) Treatment of nonvested benefits. In the case of annuity distributions under a defined benefit plan, if any portion of the employee's benefit is not vested as of December 31 of a distribution calendar year, the portion that is not vested as of that date is treated as not having accrued for purposes of determining the required minimum distribution for that distribution calendar year. When an additional portion of the employee's benefit becomes vested, that portion will be treated as an additional accrual. See paragraph (e) of this section for the rules for distributing benefits that accrue under a defined benefit plan after the employee's first distribution calendar year.
(g) Requirement for actuarial increase―
(1) General rule―
(i) Applicability of increase. Except as otherwise provided in this paragraph (g), if an employee retires after the calendar year in which the employee attains age 70½, then, in order to satisfy section 401(a)(9)(C)(iii), the employee's accrued benefit under a defined benefit plan must be actuarially increased for the period (if any) from the start date described in paragraph (g)(1)(ii) of this section to the end date described in paragraph (g)(1)(iii) of this section.
(ii) Start date for actuarial increase. The start date for the required actuarial increase is April 1 following the calendar year in which the employee attains age 70½ (or January 1, 1997, if the employee attained 70½ prior to January 1, 1997).
(iii) End date for actuarial increase. The end date for the required actuarial increase is the date on which benefits commence after retirement in a form that satisfies paragraphs (a) and (h) of this section.
(iv) Determination of when employee attains age 70½. An employee attains age 70½ as of the date six calendar months after the 70th anniversary of the employee's birth. For example, if the date of birth of an employee is June 30, 1955, the 70th anniversary of the employee's birth is June 30, 2025, and the employee attains age 70½ in 2025. However, if the employee's date of birth is July 1, 1955, the 70th anniversary of the employee's birth is July 1, 2025, and the employee attains age 70½ in 2026.
(2) Nonapplication to 5-percent owners. This paragraph (g) does not apply to an employee if that employee is a 5-percent owner (as defined in section 416) with respect to the plan year ending in the calendar year in which the employee attains the applicable age.
(3) Nonapplication to governmental plans. The actuarial increase required under this paragraph (g) does not apply to a governmental plan (within the meaning of section 414(d)).
(4) Nonapplication to church plans and church employees—
(i) Church plans. The actuarial increase required under this paragraph (g) does not apply to a church plan. For purposes of this paragraph (g)(4)--
(A) The term church plan means a plan maintained by a church (as defined in section 3121(w)(3)(A)) or a qualified church-controlled organization (as defined in section 3121(w)(3)(B)) for its employees; and
(B) A plan is treated as a church plan only if at least 85 percent of the individuals covered by the plan are employees of a church or a qualified church-controlled organization.
(ii) Determination of whether an individual is an employee of a church. For purposes of this paragraph (g)(4), the determination of whether an individual is an employee of a church or a qualified church-controlled organization is made in accordance with the rules of section 414(e)(3)(B) other than section 414(e)(3)(B)(ii).
(iii) Church employees covered in other plans. If a plan is not a church plan within the meaning of paragraph (g)(4)(i) of this section, then the actuarial increase required under this paragraph (g) does not apply to benefits accrued under the plan by an individual that are attributable to the service the individual performs as an employee of a church or a qualified church-controlled organization (including service performed as an employee described in section 414(e)(3)(B)(i)).
(h) Amount of actuarial increase―
(1) In general. In order to satisfy section 401(a)(9)(C)(iii), the retirement benefits payable with respect to an employee as of the end of the period for which actuarial increases must be provided as described in paragraph (g) of this section must be no less than--
(i) The actuarial equivalent of the employee's retirement benefits that would have been payable as of the start date described in paragraph (g)(1)(ii) of this section if benefits had commenced on that date; plus
(ii) The actuarial equivalent of any additional benefits accrued after that date; reduced by
(iii) The actuarial equivalent of any distributions made with respect to the employee's retirement benefits after that date.
(2) Actuarial equivalence basis. For purposes of this paragraph (h), actuarial equivalence is determined using reasonable actuarial assumptions. If the plan is subject to section 411, the plan's assumptions must be the same as the assumptions used for determining actuarial equivalence for purposes of satisfying section 411.
(3) Coordination with section 411 actuarial increase. Under section 411, in order for an employee's accrued benefit under a defined benefit plan to be nonforfeitable, the plan must make an actuarial adjustment to any portion of that accrued benefit, the payment of which is deferred past normal retirement age. The only exception to this rule is that, generally, no actuarial adjustment is required to reflect the period during which a benefit is suspended as permitted under section 411(a)(3)(B). The actuarial increase required under section 401(a)(9)(C)(iii) for the period (if any) described in paragraph (g)(1)(i) of this section generally is the same as, and not in addition to, the actuarial increase required for the same period under section 411 to reflect any delay in the payment of retirement benefits after normal retirement age. However, unlike the actuarial increase required under section 411, the actuarial increase required under section 401(a)(9)(C)(iii) must be provided even during any period during which an employee's benefit has been suspended in accordance with section 411(a)(3)(B).
(i) [Reserved]
(j) Distributions restricted pursuant to section 436―
(1) General rule. If an employee’s entire interest is being distributed in accordance with the 5-year rule of section 401(a)(9)(B)(ii), a plan is not treated as failing to satisfy section 401(a)(9) merely because of the application of a payment restriction under section 436(d), provided that distributions of the employee’s interest commence by the end of the calendar year that includes the fifth anniversary of the date of the employee’s death and, after the annuity starting date, those distributions are paid in a form that is as accelerated as permitted under section 436(d), as described in paragraph (j)(2) or (3) of this section.
(2) Payments restricted under section 436(d)(3). If the payment restriction of section 436(d)(3) applies at the time benefits commence under paragraph (j)(1) of this section, then distributions are made in a form that is as accelerated as permitted under section 436(d) if the benefits are paid in a single-sum payment equal to the maximum amount allowed under section 436(d)(3), with the remainder paid as a life annuity to the beneficiary (or over the course of 240 months pursuant to §1.436-1(j)(6)(ii) in the case of a beneficiary that is not an individual), subject to a requirement that the benefit remaining is commuted to a single-sum payment when the section 436(d)(3) payment restriction ceases to apply (to the extent that a single-sum payment is permitted under section 436(d)(1) and (2)).
(3) Payments restricted under section 436(d)(1) or (2). If a plan is subject to the payment restriction in section 436(d)(1) or (2) at the time benefits commence under paragraph (j)(1) of this section, then distributions are made in a form that is as accelerated as permitted under section 436(d) if the benefits are paid in the form of a life annuity to the beneficiary (or over the course of 240 months pursuant to §1.436-1(j)(6)(ii), in the case of a beneficiary that is not an individual), subject to a requirement that the benefit remaining is commuted to a single-sum payment to the extent permitted under section 436(d) (for example, the maximum amount allowed under section 436(d)(3)) when the payment restriction under section 436(d)(1) or (2) ceases to apply.
(k) Treatment of early commencement―
(1) General rule. Generally, the determination of whether a stream of payments satisfies the requirements of this section is made as of the required beginning date. However, if distributions start prior to the required beginning date in a distribution form that is an annuity under which distributions are made in accordance with the provisions of paragraph (a) of this section and are made over a period permitted under section 401(a)(9)(A)(ii), then, except as provided in this paragraph (k), the annuity starting date will be treated as the required beginning date for purposes of applying the rules of this section and §1.401(a)(9)-2. Thus, for example, the determination of the designated beneficiary and the amount of distributions will be made as of the annuity starting date. Similarly, if the employee dies after the annuity starting date but before the required beginning date determined under §1.401(a)(9)-2(b), then after the employee's death--
(i) The remaining portion of the employee's interest must continue to be distributed in accordance with this section over the remaining period over which distributions commenced; and
(ii) The rules in §1.401(a)(9)-3 relating to death before the required beginning date do not apply.
(2) Joint and survivor annuity, non-spouse beneficiary―
(i) Application of MDIB requirement. If distributions commence in the form of a joint and survivor annuity for the lives of the employee and a beneficiary other than the employee's spouse, and as of the employee's birthday in the calendar year that includes the annuity starting date, the employee is younger than the applicable age, then the MDIB requirement will not be satisfied as of the date distributions commence unless, under the distribution option, the annuity payments to be made on and after the employee's required beginning date satisfy the conditions of this paragraph (k)(2). The periodic annuity payments payable to the survivor satisfy this paragraph (k)(2) if, at all times on and after the employee's annuity starting date, those payments do not exceed the applicable percentage of the periodic annuity payment payable to the employee determined using the table in paragraph (b)(2)(iii) of this section (but based on the adjusted employee/beneficiary age difference). The adjusted employee/beneficiary age difference is determined by first calculating the employee/beneficiary age difference under paragraph (b)(2)(iii) of this section and then reducing that age difference by the number of years by which the employee is younger than the applicable age on the employee's birthday in the calendar year that includes the annuity starting date. In the case of an annuity that provides for increasing payments, the requirement of this paragraph (k)(2) will not fail to be satisfied merely because benefit payments to the beneficiary increase, provided the increase is determined in the same manner for the employee and the beneficiary.
(ii) Example―
(A) Facts. Distributions under a defined benefit plan commence on January 1, 2025, to an employee Z, born March 1, 1958. Z's daughter Y, born February 5, 1989, is Z's beneficiary. The distributions are in the form of a joint and survivor annuity for the lives of Z and Y with payments of $500 a month to Z and upon Z's death of $500 a month to Y (so that the monthly payment to Y is 100 percent of the monthly amount payable to Z).
(B) Analysis and conclusion. Z’s required beginning date is April 1, 2032 (that is, April 1 of the calendar year following the calendar year in which Z will attain age 73). Under paragraph (k)(1) of this section, because distributions commence prior to Z’s required beginning date and are in the form of a joint and survivor annuity for the lives of Z and Y, compliance with the rules of this section is determined as of the annuity starting date. Under this paragraph (k)(2), the adjusted employee/beneficiary age difference is calculated by taking the excess of the employee's age over the beneficiary's age and subtracting the number of years the employee is younger than the applicable age (in this case, age 73). In 2025, Z attains age 67 and Y attains age 36. Accordingly, the employee/beneficiary age difference is 31. Because Z is commencing benefits 6 years before attaining the applicable age, the adjusted employee/beneficiary age difference is 25 years. Under table 1 to paragraph (b)(2)(iii) of this section, the applicable percentage for a 25-year adjusted employee/beneficiary age difference is 66 percent. The plan does not satisfy the MDIB requirement because, as of January 1, 2025 (the annuity starting date), the distribution option provides that, as of Z's required beginning date, the monthly payment to Y upon Z's death will exceed 66 percent of Z's monthly payment.
(3) Limitation on period certain. If, as of the employee's birthday in the calendar year that includes the annuity starting date, the employee is younger than the applicable age, then the period certain may not exceed the limitation on the period certain for an individual who has attained the applicable age as specified in paragraph (c)(1) of this section, increased by the number of years by which the employee is younger than the applicable age on that birthday.
(l) Early commencement for surviving spouse. Generally, the determination of whether a stream of payments satisfies the requirements of this section is made as of the date on which distributions are required to commence. However, if the employee dies prior to the required beginning date, distributions commence to the surviving spouse of an employee over a period permitted under section 401(a)(9)(B)(iii)(II) prior to the date on which distributions are required to commence, and the distribution form is an annuity under which distributions are made in accordance with the provisions of paragraph (a) of this section, then the annuity starting date will be considered the required beginning date for purposes of section 401(a)(9)(B)(iv)(III). Thus, if the surviving spouse dies after commencing benefits and before the date described in 401(a)(9)(B)(iv)(II), then after the surviving spouse's death--
(1) The rules in §1.401(a)(9)-3(e)(1) relating to the death of the surviving spouse before the required beginning date under section 401(a)(9)(B)(iv)(III) will not apply upon the death of the surviving spouse; and
(2) The annuity distributions must continue to be made in accordance with paragraph (a) of this section over the remaining period over which distributions commenced.
(m) Determination of entire interest under annuity contract―
(1) General rule. Prior to the date that an annuity contract under an individual account plan is annuitized, the interest of an employee or beneficiary under that contract is treated as an individual account for purposes of section 401(a)(9). Thus, the required minimum distribution for any year with respect to that interest is determined under §1.401(a)(9)-5 rather than this section. See §1.401(a)(9)-5(a)(5) for rules relating to the satisfaction of section 401(a)(9) in the year that annuity payments commence (including situations in which an annuity contract is purchased with a portion of an employee's account balance) and §1.401(a)(9)-5(b)(4) for rules relating to QLACs (as defined in paragraph (q) of this section).
(2) Entire interest. For purposes of applying the rules in §1.401(a)(9)-5, the entire interest under the annuity contract as of December 31 of the relevant valuation calendar year is treated as the account balance for the valuation calendar year described in §1.401(a)(9)-5(c). The entire interest under an annuity contract is the dollar amount credited to the employee or beneficiary under the contract (that is, the notional account balance) plus the actuarial present value of any additional benefits (for example, survivor benefits in excess of the dollar amount credited to the employee or beneficiary) that will be provided under the contract. However, paragraph (m)(3) of this section describes certain additional benefits that may be disregarded in determining the employee's entire interest under the annuity contract. The actuarial present value of any additional benefits described under this paragraph (m) is to be determined using reasonable actuarial assumptions, including reasonable assumptions as to future distributions, and without regard to an individual's health.
(3) Exclusions―
(i) Additional value does not exceed 20 percent. The actuarial present value of any additional benefits provided under an annuity contract described in paragraph (m)(2) of this section may be disregarded if the sum of the dollar amount credited to the employee or beneficiary under the contract and the actuarial present value of the additional benefits is no more than 120 percent of the dollar amount credited to the employee or beneficiary under the contract and the additional benefits are one or both of the following--
(A) Additional benefits that, in the case of a distribution, are reduced by an amount sufficient to ensure that the ratio of the sum to the dollar amount credited does not increase as a result of the distribution; and
(B) An additional benefit that is the right to receive a final payment upon death that does not exceed the amount by which the total consideration paid exceeds the amount of prior distributions.
(ii) Return of premium death benefit. If the only additional benefit provided under the contract is the additional benefit described in paragraph (m)(3)(i)(B) of this section, the additional benefit may be disregarded regardless of its value in relation to the dollar amount credited to the employee or beneficiary under the contract.
(iii) Additional guidance. The Commissioner, in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin (see §601.601(d) of this chapter), may provide additional guidance on additional benefits that may be disregarded.
(4) Examples. The examples in this paragraph (m)(4), which use a 5 percent interest rate and the mortality table used for distributions subject to section 417(e)(3) provided in Notice 2019-67, 2019-52 IRB 1510, illustrate the application of the rules in this paragraph (m):
(i) Example 1―
(A) Facts. G is the owner of a variable annuity contract (Contract S) under an individual account plan that has not been annuitized. Contract S provides a death benefit until the end of the calendar year in which the owner attains the age of 84 equal to the greater of the current Contract S notional account balance (dollar amount credited to G under the contract) and the largest notional account balance at any previous policy anniversary reduced proportionally for subsequent partial distributions (High Water Mark). Contract S provides a death benefit in calendar years after the calendar year in which the owner attains age 84 equal to the current notional account balance. Contract S provides that assets within the contract may be invested in a Fixed Account at a guaranteed rate of 2 percent. Contract S provides no other additional benefits.
(B) Actuarial calculations. At the end of 2028, when G has an attained age of 78 and 9 months, the notional account balance of Contract S (after the distribution for 2028 of 4.55 percent of the notional account balance as of December 31, 2027) is $550,000, and the High Water Mark, before adjustment for any withdrawals from Contract S in 2028, is $1,000,000. Thus, Contract S will provide additional benefits (that is, the death benefits in excess of the notional account balance) through 2034, the year S turns 84. The actuarial present value of these additional benefits at the end of 2028 is determined to be $67,978 (12 percent of the notional account balance). In making this determination, the following assumptions are made: on average, deaths occur mid-year; the investment return on G’s notional account balance is 2 percent per annum; and minimum required distributions (determined without regard to additional benefits under the Contract S) are made at the end of each year. The following two tables summarize the actuarial methodology used in determining the actuarial present value of the additional benefit.
Table 2 to paragraph (m)(4)(i)(B)
Year | Death benefit during year | End-of-year notional account balance before withdrawal | Average notional account balance | Withdrawal at end of year | End-of-year notional account balance after withdrawal |
|---|---|---|---|---|---|
2028 | $1,000,000 |
|
|
| $550,000 |
2029 | 954,5451 | $561,0002 | $555,5003 | $26,6064 | 534,934 |
2030 | 909,306 | 545,633 | 540,283 | 26,482 | 519,151 |
2031 | 864,291 | 529,534 | 524,342 | 26,760 | 502,774 |
2032 | 819,740 | 512,829 | 507,801 | 27,177 | 485,652 |
2033 | 775,430 | 495,365 | 490,509 | 27,438 | 467,927 |
2034 | 731,620 | 477,286 | 472,606 | 27,853 | 449,433 |
1$1,000,000 death benefit reduced 4.55 percent for withdrawal during 2028.
2Notional account balance at end of preceding year (after distribution) increased by 2 percent return for year.
3Average of $550,000 notional account balance at end of preceding year (after distribution) and $561,000 notional account balance at end of current year (before distribution).
4December 31, 2028 notional account balance (before distribution) divided by uniform lifetime table age 79 factor of 21.1.
Table 3 to paragraph (m)(4)(i)(B)
Year | Survivorship to start of year | Interest discount to end of 2028 | Mortality rate during year | Discounted additional benefits within year |
|---|---|---|---|---|
2028 |
|
|
|
|
2029 | 1.00000 | .97590 | 5.03321 | 12,933 |
2030 | .96679 | 6.92943 | .03739 | 712,398 |
2031 | 8.93064 | .88517 | .04198 | 11,756 |
2032 | .89157 | .84302 | .04715 | 11,055 |
2033 | .84953 | .80288 | .05305 | 10,310 |
2034 | .80446 | .76464 | .05979 | 9,526 |
|
|
|
| $67,978 |
5One-quarter age 78 rate plus three-quarters age 79 rate.
6Five percent discounted 18 months (1.05(-1.5)).
7Blended age 79/age 80 mortality rate (.03739) multiplied by the $369,023 excess of death benefit over the average notional account balance ($909,306 less $540,283) multiplied by .96679 probability of survivorship to the start of 2030 multiplied by 18-month interest discount of .92943.
8Survivorship to start of preceding year (.96679) multiplied by probability of survivorship during prior year (1-.03739).
(C) Conclusion. Because Contract S provides that, in the case of a distribution, the value of the additional death benefit (which is the only additional benefit available under the contract) is reduced by an amount that is at least proportional to the reduction in the notional account balance and, at age 78 and 9 months, the sum of the notional account balance (dollar amount credited to the employee under the contract) and the actuarial present value of the additional death benefit is no more than 120 percent of the notional account balance, the exclusion under paragraph (m)(3)(i) of this section applies for 2029. Therefore, for purposes of applying the rules in §1.401(a)(9)-5, the entire interest under Contract S may be determined as the notional account balance (that is, without regard to the additional death benefit).
(ii) Example 2―
(A) Facts. The facts are the same as in paragraph (m)(4)(i) of this section (Example 1), except that the notional account balance is $550,000 at the end of 2028. In this instance, the actuarial present value of the death benefit in excess of the notional account balance in 2028 is determined to be $97,273 (24 percent of the notional account balance). The following two tables summarize the actuarial methodology used in determining the actuarial present value of the additional benefit.
Table 4 to paragraph (m)(4)(ii)(A)
Year | Death benefit during year | End-of-year notional account balance before withdrawal | Average notional account balance | Withdrawal at end of year | End-of-year notional account balance after withdrawal |
|---|---|---|---|---|---|
2028 | $1,000,000 |
|
|
| $400,000 |
2029 | 954,545 | $408,000 | $404,000 | $18,957 | 389,043 |
2030 | 909,306 | 396,824 | 392,933 | 19,260 | 377,564 |
2031 | 864,291 | 385,115 | 381,339 | 19,462 | 365,653 |
2032 | 819,740 | 372,966 | 369,310 | 19,765 | 353,201 |
2033 | 775,430 | 360,265 | 356,733 | 19,955 | 340,310 |
2034 | 731,620 | 347,116 | 343,713 | 20,257 | 326,859 |
Table 5 to paragraph (m)(4)(ii)(A)
Year | Survivorship to start of year | Interest discount to end of 2028 | Mortality rate during year | Discounted additional benefits within year |
|---|---|---|---|---|
2028 |
|
|
|
|
2029 | 1.00000 | .97590 | .03321 | $17,843 |
2030 | .96679 | .92943 | .03739 | 17,349 |
2031 | .93064 | .88517 | .04198 | 16,701 |
2032 | .89157 | .84302 | .04715 | 15,963 |
2033 | .84953 | .80288 | .05305 | 15,150 |
2034 | .80446 | .76464 | .05979 | 14,267 |
|
|
|
| $97,273 |
(B) Conclusion. Because the sum of the notional account balance and the actuarial present value of the additional death benefit is more than 120 percent of the notional account balance, the exclusion under paragraph (m)(3)(i) of this section does not apply for 2029. Therefore, for purposes of applying the rules in §1.401(a)(9)-5, the entire interest under Contract S must include the actuarial present value of the additional death benefit.
(n) Change in annuity payment period―
(1) In general. An annuity payment period may be changed in accordance with the reannuitization provisions set forth in paragraph (n)(2) of this section or in association with an annuity payment increase described in paragraph (o) of this section.
(2) Reannuitization. If, in a stream of annuity payments that otherwise satisfies section 401(a)(9), the annuity payment period is changed and the annuity payments are modified in association with that change, this modification will not cause the distributions to fail to satisfy section 401(a)(9) provided the conditions set forth in paragraph (n)(3) of this section are satisfied, and--
(i) The modification occurs at the time that the employee retires or in connection with a plan termination;
(ii) The annuity payments prior to modification are annuity payments paid over a period certain without life contingencies; or
(iii) The annuity payments after modification are paid under a qualified joint and survivor annuity over the joint lives of the employee and a designated beneficiary, the employee's spouse is the sole beneficiary, and the modification occurs in connection with the employee becoming married to that spouse.
(3) Conditions. In order to modify a stream of annuity payments in accordance with paragraph (n)(2) of this section, the following conditions must be satisfied--
(i) The future payments under the modified stream satisfy section 401(a)(9) and this section (determined by treating the date of the change as a new annuity starting date and the actuarial present value of the remaining payments prior to modification as the entire interest of the participant);
(ii) For purposes of sections 415 and 417, the modification is treated as a new annuity starting date;
(iii) After taking into account the modification, the annuity stream satisfies section 415 (determined at the original annuity starting date, using the interest rates and mortality tables applicable as of that date); and
(iv) The end point of the period certain, if any, for any modified payment period is not later than the end point available under section 401(a)(9) to the employee at the original annuity starting date.
(4) Examples. For the purposes of the examples in this paragraph (n)(4), assume that the applicable segment rates under section 417(e)(3) are 5.00 percent, 5.50 percent, and 6.00 percent, and the applicable mortality table under section 417(e)(3) is the mortality table provided in Notice 2023-73, 2023-45 IRB 232. In addition, assume that the section 415 limit at age 72 for a straight life annuity is $306,667 (which is the lesser of the annual benefit under section 415(b)(1)(A), as adjusted pursuant to section 415(d) and further adjusted for age 72 in accordance with §1.415(b)-1(e)(1)(i), and 100 percent of the participant’s average compensation for the participant’s high 3 years):
(i) Example 1―
(A) Facts―
(1) Background. Participant D has 10 years of participation in a frozen defined benefit plan (Plan W). D is not retired and elects to receive distributions from Plan W in the form of a straight life annuity with annual payments of $310,000 per year beginning in 2025 at a date when D has an attained age of 72. Plan W offers non-retired employees in pay status the opportunity to modify their annuity payments due to an associated change in the payment period at retirement. Plan W treats the date of the change in payment period as a new annuity starting date for purposes of sections 415 and 417. Thus, for example, the plan provides a new qualified and joint survivor annuity election and obtains spousal consent. Plan W determines modifications of annuity payment amounts at retirement so that the present value of future new annuity payment amounts (taking into account the new associated payment period) is actuarially equivalent to the present value of future pre-modification annuity payments (taking into account the pre-modification annuity payment period). Actuarial equivalency for this purpose is determined using the applicable segment rates under section 417(e)(3)(C) and the applicable mortality table as of the date of modification.
(2) Payment of retirement benefits to Participant D. D retires in 2029 at the age of 76 and, after receiving four annual payments of $310,000, elects to receive the remaining distributions from Plan W in the form of an immediate final lump sum payment of $2,795,732. Because payment of retirement benefits in the form of an immediate final lump sum payment satisfies (in terms of form) section 401(a)(9), the condition under paragraph (n)(3)(i) of this section is met.
(B) Analysis. Because Plan W treats a modification of an annuity payment stream at retirement as a new annuity starting date for purposes of sections 415 and 417, the condition under paragraph (n)(3)(ii) of this section is met. After taking into account the modification, the annuity stream determined as of the original annuity starting date consists of annual payments beginning at age 72 of $310,000, $310,000, $310,000, $310,000, and $2,795,732. This benefit stream is actuarially equivalent to a straight life annuity at age 72 of $315,145, calculated in accordance with section 415(b)(2)(E)(ii), which is an amount less than the section 415 limit determined at the original annuity starting date. Thus, the condition under paragraph (n)(3)(iii) of this section is met. In addition, because the modified payment period does not include a period certain, paragraph (n)(3)(iv) of this section does not apply.
(C) Conclusion. Because a stream of annuity payments in the form of a straight life annuity satisfies section 401(a)(9), and because each of the conditions under paragraph (n)(3) of this section are satisfied, the modification of annuity payments to D described in this example meets the requirements of this paragraph (n).
(ii) Example 2―
(A) Facts. The facts are the same as in paragraph (n)(4)(i) of this section (Example 1), except that the straight life annuity payments are paid at a rate of $330,000 per year and, after D retires, the lump sum payment at age 76 is $2,976,102. Thus, after taking into account the modification, the annuity stream determined as of the original annuity starting date consists of annual payments beginning at age 72 of $330,000, $330,000, $330,000, $330,000, and $2,976,102.
(B) Conclusion. The benefit stream described in paragraph (n)(4)(ii)(A) of this section is actuarially equivalent to a straight life annuity at age 72 of $335,477, calculated in accordance with section 415(b)(2)(E)(ii), which exceeds the section 415 limit determined at the original annuity starting date. Thus, the lump sum payment to D fails to satisfy the condition under paragraph (n)(3)(iii) of this section. Therefore, the lump sum payment to D fails to meet the requirements of this paragraph (n) and fails to satisfy the requirements of section 401(a)(9).
(iii) Example 3―
(A) Facts―
(1) Background. Participant E has 10 years of participation in Plan X, a frozen defined benefit plan. E retires in 2025 at a date when E’s attained age is 72. E elects to receive annual distributions from Plan X in the form of a 27-year period certain annuity (that is, a 27-year annuity payment period without a life contingency) paid at a rate of $37,000 per year beginning in 2025 with future payments increasing at a rate of 4.00 percent per year (that is, the 2026 payment will be $38,480, the 2027 payment will be $40,019 and so on). Plan X offers participants in pay status whose annuity payments are in the form of a term-certain annuity the opportunity to modify their payment period at any time and treats the modifications as a new annuity starting date for the purposes of sections 415 and 417. Thus, for example, the plan provides a new qualified and joint survivor annuity election and obtains spousal consent.
(2) Plan provisions for determination of actuarial equivalence. Plan X determines modifications of annuity payment amounts so that the present value of future new annuity payment amounts (taking into account the new associated payment period) is actuarially equivalent to the present value of future pre-modification annuity payments (taking into account the pre-modification annuity payment period). Actuarial equivalency for this purpose is determined using 5.00 percent and the applicable mortality table as of the date of modification.
(3) Modification of retirement benefits paid to Participant E. In 2028, E, after receiving annual payments of $37,000, $38,480, and $40,019, elects to receive the remaining distributions from Plan W in the form of a straight life annuity paid with annual payments of $92,133 per year.
(B) Analysis. Because payment of retirement benefits in the form of a straight life annuity satisfies (in terms of form) section 401(a)(9), the condition under paragraph (n)(3)(i) of this section is met. Because Plan X treats a modification of an annuity payment stream at retirement as a new annuity starting date for purposes of sections 415 and 417, the condition under paragraph (n)(3)(ii) of this section is met. After taking into account the modification, the annuity stream determined as of the original annuity starting date consists of annual payments beginning at age 72 of $37,000, $38,480, and $40,019, and a straight life annuity beginning at age 75 of $92,133. This benefit stream is actuarially equivalent to a straight life annuity at age 72 of $81,924, calculated in accordance with section 415(b)(2)(E)(i), which is an amount less than the section 415 limit determined at the original annuity starting date. Thus, the condition under paragraph (n)(3)(iii) of this section is met. In addition, because the modified payment period does not include a period certain, paragraph (n)(3)(iv) of this section does not apply.
(C) Conclusion. Because a stream of annuity payments in the form of a straight life annuity satisfies section 401(a)(9), and each of the conditions under paragraph (n)(3) of this section are satisfied, the modification of annuity payments to E meets the requirements of this paragraph (n).
(o) Increase in annuity payments―
(1) General rules. Notwithstanding the general rule under paragraph (a)(1) of this section prohibiting increases in annuity payments, the following increases in annuity payments are permitted--
(i) An annual percentage increase that does not exceed the percentage increase in an eligible cost-of-living index (as defined in paragraph (o)(2) of this section) for a 12-month period ending in the year during which the increase occurs or the prior year;
(ii) A percentage increase that occurs at specified times (for example, at specified ages) and does not exceed the cumulative total of annual percentage increases in an eligible cost-of-living index (as defined in paragraph (o)(2) of this section) after the annuity starting date, or if later, the date of the most recent percentage increase;
(iii) An increase by a constant percentage, applied not less frequently than annually, at a rate that is less than 5 percent per year;
(iv) An increase eliminating some or all of the reduction in the amount of the employee's payments to provide for a survivor benefit, but only if there is no longer a survivor benefit because the beneficiary whose life was being used to determine the period described in section 401(a)(9)(A)(ii) over which payments were being made dies or is no longer the employee's beneficiary pursuant to a qualified domestic relations order within the meaning of section 414(p);
(v) An increase to pay increased benefits that result from a plan amendment;
(vi) An increase to allow a beneficiary to convert the survivor portion of a joint and survivor annuity into a single-sum distribution upon the employee's death;
(vii) An increase to the extent permitted in accordance with paragraph (o)(3) or (4); or
(viii) An increase resulting from the resumption of benefits that were suspended pursuant to section 411(a)(3)(B), 418E, or 432(e)(9).
(2) Eligible cost of living index―
(i) In general. For purposes of this paragraph (o), an eligible cost-of-living index means an index described in paragraph (o)(2)(ii), (iii), or (iv) of this section.
(ii) Consumer price index. An index is described in this paragraph (o)(2)(ii) if it is a consumer price index that is based on prices of all items (or all items excluding food and energy) and issued by the Bureau of Labor Statistics, including an index for a specific population (for example, urban consumers or urban wage earners and clerical workers) and an index for a geographic area or areas (for example, a metropolitan area or State).
(iii) Consumer price index with banking. An index is described in this paragraph (o)(2)(iii) if it is a percentage adjustment based on a cost-of-living index described in paragraph (o)(2)(ii) of this section, or a fixed percentage if less. In any year when the cost-of-living index is lower than the fixed percentage, the fixed percentage may be treated as an increase in an eligible cost-of-living index, provided it does not exceed the sum of--
(A) The cost-of-living index for that year, and
(B) The accumulated excess of the annual cost-of-living index from each prior year over the fixed annual percentage used in that year (reduced by any amount previously utilized under this paragraph (o)(2)(iii)(B)).
(iv) Adjustment based on compensation for position. An index is described in this paragraph (o)(2)(iv) if it is a percentage adjustment based on the increase in compensation for the position held by the employee at the time of retirement, and provided under either--
(A) The terms of a governmental plan (within the meaning of section 414(d)), or
(B) The terms of a nongovernmental plan, as in effect on April 17, 2002.
(3) Additional permitted increases for annuity contracts purchased from insurance companies. Payments made from an annuity contract purchased from an insurance company will not fail to satisfy the nonincreasing payment requirement in paragraph (a)(1) of this section merely because the payments are increased in accordance with one or more of the following--
(i) As a result of dividend payments or other payments that result from actuarial gains (within the meaning of paragraph (o)(5) of this section), but only if--
(A) Actuarial gain is measured no less frequently than annually;
(B) The resulting dividend payments or other payments are either paid no later than the year following the year for which the actuarial experience is measured or paid in the same form as the payment of the annuity over the remaining period of the annuity (beginning no later than the year following the year for which the actuarial experience is measured); and
(C) The issuer of the contract uses reasonable actuarial methods and assumptions, as determined in good faith, when calculating the initial annuity payments, the issuer's experience with respect to those factors, and the amount of the dividend payments or other payments;
(ii) As a result of a shortening of the payment period with respect to the annuity or a full or partial commutation of the future annuity payments, provided that the amount of the payment pursuant to the commutation is determined using reasonable actuarial methods and assumptions, as determined in good faith by the issuer of the contract.
(iii) To provide a final payment upon death that does not exceed the amount by which the total consideration paid for the contract exceeds the aggregate amount of prior distributions under the contract; or
(iv) To provide a short-term advance of payments under the annuity, under which annuity payments that would otherwise satisfy the requirements of this section are paid up to one year before the payments were scheduled to be made.
(4) Additional permitted increases for annuity payments from a qualified trust. Annuity payments made under a defined benefit plan qualified under section 401(a) (including payments under an annuity contract purchased from an insurance company that provides the same benefits that would have been payable under the defined benefit plan if an annuity contract had not been purchased, but not an annuity contract that provides other benefits) will not fail to satisfy the nonincreasing payment requirement in paragraph (a)(1) of this section merely because the payments are increased in accordance with one of the following--
(i) As a result of dividend payments or other payments that result from actuarial gains (within the meaning of paragraph (o)(5) of this section), but only if--
(A) The actuarial gain is measured no less frequently than annually;
(B) The resulting dividend payments or other payments are either paid no later than the year following the year for which the actuarial experience is measured or paid in the same form as the annuity over the remaining period of the annuity (beginning no later than the year following the year for which the actuarial experience is measured);
(C) The actuarial gain taken into account is limited to the actuarial gain from investment experience;
(D) The assumed interest used to calculate actuarial gains is not less than 3 percent; and
(E) The payments are not increasing by a constant percentage as described in paragraph (o)(1)(iii) of this section; or
(ii) To provide a final payment upon the death of the employee that does not exceed the excess of the actuarial present value of the employee's accrued benefit (within the meaning of section 411(a)(7)) calculated as of the annuity starting date using the applicable interest rate and the applicable mortality table under section 417(e) (or, if greater, the total amount of employee contributions plus interest) over the total of payments before the death of the employee.
(5) Actuarial gain defined. For purposes of this paragraph (o), actuarial gain means the difference between an amount determined using the actuarial assumptions (that is, investment return, mortality, expense, and other similar assumptions) used to calculate the initial payments before adjustment for any increases and the amount determined under the actual experience with respect to those factors. Actuarial gain also includes differences between the amount determined using actuarial assumptions when an annuity was purchased or commenced, and the amount determined using actuarial assumptions used in calculating payments at the time the actuarial gain is determined.
(6) Examples. This paragraph (o) is illustrated by the following examples.
(i) Example 1. Variable annuity―
(A) Facts. A retired participant Z1 in Plan X, a defined contribution plan, attains age 72 in 2021. Z1 elects to purchase Contract Y1 from Insurance Company W in 2025. Contract Y1 is a single life annuity contract with a 10-year period certain. Contract Y1 provides for an initial annual payment calculated with an assumed interest rate (AIR) of 3 percent, which is assumed for purposes of this example to be a reasonable interest rate selected in good faith. Subsequent payments are determined by multiplying the prior year’s payment by a fraction, the numerator of which is 1 plus the actual return on the separate account assets underlying Contract Y1 since the preceding payment (which is reasonably determined in good faith) and the denominator of which is 1 plus the AIR during that period.
(B) Analysis. Under paragraph (o)(3)(i) of this section, payments made from an annuity contract purchased from an insurance company will not fail to satisfy the nonincreasing payment requirement on account of payment increases that result from actuarial gains (within the meaning of paragraph (o)(5) of this section), if the conditions set forth in paragraphs (o)(3)(i)(A) through (C) of this section are satisfied. The payment increases under Contract Y1 are the result of actuarial gain within the meaning of paragraph (o)(5) of this section because they are the result of the difference between investment experience and the 3 percent interest rate used to calculate the initial payments under Contract Y1. Contract Y1 satisfies the requirement of paragraph (o)(3)(i)(A) of this section because actuarial gain under Contract Y1 is measured annually. Contract Y1 satisfies the requirement of paragraph (o)(3)(i)(B) of this section because the actuarial gains are paid over the remaining period of the annuity beginning in the year following the year for which the actuarial experience is measured. Contract Y1 satisfies the requirement of paragraph (o)(3)(i)(C) of this section because the issuer of Contract Y1 used reasonable actuarial methods and assumptions, as determined in good faith, when calculating the initial annuity payments, the issuer's experience with respect to those factors, and the amount of adjustments under Contract Y1.
(C) Conclusion. Because payments under Contract Y1 increase only as a result of actuarial gain, and those increases satisfy the conditions set forth in paragraphs (o)(3)(i)(A) through (C) of this section, those increases are described in paragraph (o)(3)(i) of this section and therefore are excepted from the nonincreasing payment requirement of paragraph (a)(1) of this section pursuant to the exception under paragraph (o)(1)(vii) of this section.
(ii) Example 2. Participating annuity―
(A) Facts. A retired participant Z2 in Plan X, a defined contribution plan, attains age 73 in 2025. Z2 elects to purchase Contract Y2 from Insurance Company W in 2025. Contract Y2 is a participating single life annuity contract with a 10-year period certain. Contract Y2 provides for level annual payments with dividends paid in a lump sum in the year after the year for which the actuarial experience is measured or paid out levelly beginning in the year after the year for which the actuarial gain is measured over the remaining lifetime and period certain (that is, the period certain ends at the same time as the original period certain). Dividends are determined annually by the Board of Directors of Company W based upon a comparison of actual actuarial experience to expected actuarial experience in the past year, with those amounts determined on a reasonable basis in good faith. The initial payment was determined in good faith using reasonable actuarial assumptions and methods.
(B) Analysis. Under paragraph (o)(3)(i) of this section, payments made from an annuity contract purchased from an insurance company will not fail to satisfy the nonincreasing payment requirement on account of payment increases that result from actuarial gains (within the meaning of paragraph (o)(5) of this section), if the conditions set forth in paragraphs (o)(3)(i)(A) through (C) of this section are satisfied. The payment increases under Contract Y2 are the result of actuarial gain within the meaning of paragraph (o)(5) of this section. Contract Y2 satisfies the requirement of paragraph (o)(3)(i)(A) of this section because actuarial gain under Contract Y2 is measured annually. Contract Y2 satisfies the requirement of paragraph (o)(3)(i)(B) of this section because the resulting increases are paid either in the form of a lump sum or over the remaining period of the annuity beginning in the year following the year for which the actuarial experience is measured. Contract Y2 satisfies the requirement of paragraph (o)(3)(i)(C) of this section because the issuer of Contract Y2 used reasonable actuarial methods and assumptions, as determined in good faith, when calculating the initial annuity payments, the issuer’s experience with respect to those factors, and the amount of adjustments under Contract Y2.
(C) Conclusion. Because payments under Contract Y2 increase only as a result of actuarial gain, and those increases satisfy the conditions set forth in paragraphs (o)(3)(i)(A) through (C) of this section, those increases are described in paragraph (o)(3)(i) of this section and therefore are excepted from the nonincreasing payment requirement of paragraph (a)(1) of this section pursuant to the exception under paragraph (o)(1)(vii) of this section.
(iii) Example 3. Participating annuity with dividend accumulation―
(A) Facts. The facts are the same as in paragraph (o)(6)(ii) of this section (Example 2), except that the annuity provides a dividend accumulation option under which Z2 may defer receipt of the dividends to a time selected by Z2.
(B) Conclusion. Because the dividend accumulation option permits dividends to be paid commencing later than the end of the year following the year for which the actuarial experience is measured, the dividend accumulation option does not meet the requirements of paragraph (o)(3)(i)(B) of this section. Neither does the dividend accumulation option fit within any of the other permissible increases described in paragraph (o)(3) of this section. Accordingly, payment increases pursuant to the dividend accumulation option are not excepted from the nonincreasing payment requirement of paragraph (a)(1) of this section pursuant to the exception under paragraph (o)(1)(vii) of this section. Thus, Contract Y2, and consequently any distributions from the contract, fail to meet the requirements of this paragraph (o) and thus to fail to satisfy the requirements of section 401(a)(9).
(iv) Example 4. Participating annuity with dividends used to purchase additional death benefits―
(A) Facts. The facts are the same as in paragraph (o)(6)(ii) of this section (Example 2), except that the annuity provides an option under which actuarial gain under the contract is used to provide additional death benefit protection for Z2.
(B) Conclusion. Because this option permits payments as a result of actuarial gain to be paid commencing later than the end of the year following the year for which the actuarial experience is measured, the option does not meet the requirements of paragraph (o)(3)(i)(B) of this section. Neither does the option fit within any of the other permissible increases described in paragraph (o)(3) of this section. Accordingly, payment increases pursuant to the dividend accumulation option are not excepted from the nonincreasing payment requirement of paragraph (a)(1) of this section pursuant to the exception under paragraph (o)(1)(vii) of this section. Thus, Contract Y2, and consequently any distributions from the contract, fail to meet the requirements of this paragraph (o) and thus to fail to satisfy the requirements of section 401(a)(9).
(p) Payments to children―
(1) In general. Payments under a defined benefit plan or annuity contract that are made to an employee's child until the child reaches the age of majority as provided in paragraph (p)(2) of this section (or dies, if earlier) may be treated, for purposes of section 401(a)(9), as if the payments under the defined benefit plan or annuity contract were made to the surviving spouse to the extent they become payable to the surviving spouse upon cessation of the payments to the child. Thus, when payments described in this paragraph (p)(1) become payable to the surviving spouse because the child attains the age of majority, there is not an increase in benefits under paragraph (a) of this section. Likewise, the age of the child receiving the payments described in this paragraph (p)(1) is not taken into consideration for purposes of the MDIB requirement of paragraph (b) of this section.
(2) Age of majority―
(i) General rule. Except as provided in paragraph (p)(2)(ii) of this section, the determination of when an employee’s child attains the age of majority is made under the rules of §1.401(a)(9)-4(e)(3).
(ii) Exception for preexisting plan terms. A defined benefit plan may apply a definition of the age of majority other than the definition in paragraph (p)(2)(i) of this section, but only if the plan terms regarding the age of majority--
(A) Were adopted on or before February 24, 2022; and
(B) Met the requirements of A-15 of 26 CFR 1.401(a)(9)-6 (as it appeared in the April 1, 2021, edition of 26 CFR part 1).
(q) Qualifying longevity annuity contract―
(1) Definition of qualifying longevity annuity contract. A qualifying longevity annuity contract (QLAC) is an annuity contract described in paragraph (d) of this section that is purchased from an insurance company for an employee and that, in accordance with the rules of application of paragraph (q)(4) of this section, satisfies each of the following requirements--
(i) Premiums for the contract satisfy the limitations of paragraph (q)(2) of this section;
(ii) The contract provides that distributions under the contract must commence not later than a specified annuity starting date that is no later than the first day of the month next following the 85th anniversary of the employee's birth;
(iii) The contract provides that, after distributions under the contract commence, those distributions must satisfy the requirements of this section (other than the requirement in paragraph (a)(3) of this section that annuity payments commence on or before the required beginning date);
(iv) After the required beginning date, the contract does not make available any commutation benefit, cash surrender right, or other similar feature (other than a right to rescind the contract within a period not exceeding 90 days from the date of purchase);
(v) No benefits are provided under the contract after the death of the employee other than the benefits described in paragraph (q)(3) of this section;
(vi) When the contract is issued (or December 31, 2016, if later), the contract (or a rider or endorsement with respect to that contract) states that the contract is intended to be a QLAC; and
(vii) The contract is not a variable contract under section 817, an indexed contract, or a similar contract, except to the extent provided by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin (see §601.601(d) of this chapter).
(2) Limitation on premiums―
(i) In general. The premiums paid with respect to the contract on a date (premium payment date) satisfy the limitation of this paragraph (q)(2) if they do not exceed the dollar limitation of paragraph (q)(2)(ii) of this section.
(ii) Dollar limitation. The dollar limitation as of a premium payment date is an amount by which $200,000 (as adjusted under paragraph (q)(4)(ii)(A) of this section), exceeds the sum of--
(A) The premiums paid before that date with respect to the contract, and
(B) The premiums paid on or before that date with respect to any other contract that is intended to be a QLAC and that is purchased for the employee under the plan, or any other plan, annuity, or account described in section 401(a), 403(a), 403(b), or 408 or eligible governmental plan under section 457(b).
(iii) Exchange of insurance contract for QLAC. For purposes of this paragraph (q)(2), if an insurance contract is exchanged for a contract intended to be a QLAC, the fair market value of the exchanged contract will be treated as a premium paid for the QLAC. However, if an insurance contract is surrendered for its cash value, the surrender extinguishes all benefits and other characteristics of the contract, and the cash is used to purchase a QLAC, then only the cash from the surrendered contract is treated as a premium paid for the QLAC.
(3) Payments after death of the employee―
(i) Surviving spouse is sole beneficiary―
(A) Death on or after annuity starting date. If the employee dies on or after the annuity starting date for the contract and the employee's surviving spouse is the sole beneficiary under the contract then, except as provided in paragraph (q)(3)(iv) of this section, the only benefit permitted to be paid after the employee's death is a life annuity payable to the surviving spouse under which the periodic annuity payment does not exceed 100 percent of the periodic annuity payment that was payable to the employee.
(B) Death before annuity starting date. If the employee dies before the annuity starting date and the employee's surviving spouse is the sole beneficiary under the contract, then, except as provided in paragraph (q)(3)(iv) of this section, the only benefit permitted to be paid after the employee's death is a life annuity payable to the surviving spouse under which the periodic annuity payment does not exceed 100 percent of the periodic annuity payment that would have been payable to the employee as of the date that benefits to the surviving spouse commence. However, the annuity is permitted to exceed 100 percent of the periodic annuity payment that would have been payable to the employee to the extent necessary to satisfy the requirement to provide a qualified preretirement survivor annuity (as defined under section 417(c)(2) of the Code or section 205(e)(2) of the Employee Retirement Income Security Act of 1974, Pub. L. 93-406, 88 Stat. 829, as amended (ERISA), pursuant to section 401(a)(11)(A)(ii) of the Code or section 205(a)(2) of ERISA). Any life annuity payable to the surviving spouse under this paragraph (q)(3)(i)(B) must commence no later than the date on which the annuity payable to the employee would have commenced under the contract if the employee had not died.
(ii) Surviving spouse is not sole beneficiary―
(A) Death on or after annuity starting date. If the employee dies on or after the annuity starting date for the contract and the employee's surviving spouse is not the sole beneficiary under the contract then, except as provided in paragraph (q)(3)(iv) of this section, the only benefit permitted to be paid after the employee's death is a life annuity payable to the designated beneficiary under which the periodic annuity payment does not exceed the applicable percentage (determined under paragraph (q)(3)(iii) of this section) of the periodic annuity payment that is payable to the employee.
(B) Death before annuity starting date. If the employee dies before the annuity starting date and the employee's surviving spouse is not the sole beneficiary under the contract, then, except as provided in paragraph (q)(3)(iv) of this section, the only benefit permitted to be paid after the employee's death is a life annuity payable to the designated beneficiary under which the periodic annuity payment is not in excess of the applicable percentage (determined under paragraph (q)(3)(iii) of this section) of the periodic annuity payment that would have been payable to the employee as of the date that benefits to the designated beneficiary commence under this paragraph (q)(3)(ii)(B). In any case in which the employee dies before the annuity starting date, any life annuity payable to a designated beneficiary under this paragraph (q)(3)(ii)(B) must commence by the last day of the calendar year following the calendar year of the employee's death.
(C) Designated beneficiary who is not an eligible designated beneficiary. Benefits paid to a designated beneficiary under this paragraph (q)(3)(ii) must satisfy the rules of section 401(a)(9)(H) and paragraph (d)(2) of this section.
(iii) Applicable percentage—
(A) Contracts without pre-annuity starting date death benefits. If, as described in paragraph (q)(3)(iii)(E) of this section, the contract does not provide for a pre-annuity starting date non-spousal death benefit, the applicable percentage is the percentage described in the table in paragraph (b)(3) of this section.
(B) Contracts with set beneficiary designation. If the contract provides for a set non-spousal beneficiary designation as described in paragraph (q)(3)(iii)(F) of this section (and is not a contract described in paragraph (q)(3)(iii)(E) of this section), the applicable percentage is the percentage described in table 6 to paragraph (q)(3)(iii)(D).
(C) Contracts providing for return of premium. If the contract provides for a return of premium as described in paragraph (q)(3)(v) of this section, the applicable percentage is 0.
(D) Applicable percentage table. The applicable percentage is the percentage specified in following table for the adjusted employee/beneficiary age difference, determined in the same manner as in paragraph (b)(2)(iii) of this section.
Table 6 to paragraph (q)(3)(iii)(D)
Adjusted employee/beneficiary age difference | Applicable percentage |
|---|---|
2 years or less | 100 |
3 | 88 |
4 | 78 |
5 | 70 |
6 | 63 |
7 | 57 |
8 | 52 |
9 | 48 |
10 | 44 |
11 | 41 |
12 | 38 |
13 | 36 |
14 | 34 |
15 | 32 |
16 | 30 |
17 | 28 |
18 | 27 |
19 | 26 |
20 | 25 |
21 | 24 |
22 | 23 |
23 | 22 |
24 | 21 |
25 and greater | 20 |
(E) No pre-annuity starting date non-spousal death benefit. A contract is described in this paragraph (q)(3)(iii)(E) if the contract provides that no benefit may be paid to a beneficiary other than the employee's surviving spouse after the employee's death--
(1) In any case in which the employee dies before the annuity starting date under the contract; and
(2) In any case in which the employee selects an annuity starting date that is earlier than the specified annuity starting date under the contract and the employee dies less than 90 days after making that election.
(F) Contracts permitting set non-spousal beneficiary designation. A contract provides for a set non-spousal beneficiary designation as described in this paragraph (q)(3)(iii)(F) if the contract provides that, if the beneficiary under the contract is not the employee's surviving spouse, then benefits are payable to the beneficiary only if the beneficiary was irrevocably designated on or before the later of the date of purchase and the employee's required beginning date. A contract does not fail to be described in the preceding sentence merely because the surviving spouse becomes the sole beneficiary before the annuity starting date. In those circumstances, the requirements of paragraph (q)(3)(i) of this section apply and not the requirements of this paragraph (q)(3)(iii).
(iv) Calculation of early annuity payments. For purposes of paragraphs (q)(3)(i)(B) and (ii)(B) of this section, to the extent the contract does not provide an option for the employee to select an annuity starting date that is earlier than the date on which the annuity payable to the employee would have commenced under the contract if the employee had not died, the contract must provide a way to determine the periodic annuity payment that would have been payable if the employee were to have an option to accelerate the payments and the payments had commenced to the employee immediately prior to the date that benefit payments to the surviving spouse or designated beneficiary commence.
(v) Return of premiums―
(A) In general. In lieu of a life annuity payable to a designated beneficiary under paragraph (q)(3)(i) or (ii) of this section, a QLAC may provide for a benefit to be paid to a beneficiary after the death of the employee up to the amount by which the premium payments made with respect to the QLAC exceed the payments already made under the QLAC.
(B) Payments after death of surviving spouse. If a QLAC is providing a life annuity to a surviving spouse (or will provide a life annuity to a surviving spouse) under paragraph (q)(3)(i) of this section, it may also provide for a benefit payable to a beneficiary after the death of both the employee and the spouse up to the amount by which the premium payments made with respect to the QLAC exceed the payments already made under the QLAC.
(C) Timing of return of premium payment and other rules. A return of premium payment under this paragraph (q)(3)(v) must be paid no later than the end of the calendar year following the calendar year in which the employee dies. If the employee's death is after the required beginning date, the return of premium payment is treated as a required minimum distribution for the year in which it is paid and is not eligible for rollover. If the return of premium payment is paid after the death of a surviving spouse who is receiving a life annuity (or after the death of a surviving spouse who has not yet commenced receiving a life annuity after the death of the employee), the return of premium payment under this paragraph (q)(3)(v) must be made no later than the end of the calendar year following the calendar year in which the surviving spouse dies. If the surviving spouse's death is after the required beginning date for the surviving spouse, then the return of premium payment is treated as a required minimum distribution for the year in which it is paid and is not eligible for rollover.
(vi) Multiple beneficiaries. If an employee has more than one designated beneficiary under a QLAC, the rules in §1.401(a)(9)-8(a) apply for purposes of paragraphs (q)(3)(i) and (ii) of this section.
(vii) Treatment of former spouses―
(A) In general. The payment of survivor benefits to the employee’s former spouse under an annuity contract will not cause the contract to fail to satisfy the requirements of this paragraph (q)(3) merely because the divorce between the employee and that former spouse occurred after the contract is purchased, provided that a qualified domestic relations order described in section 414(p) (or, to the extent provided in paragraph (q)(3)(vii)(B) of this section, a divorce or separation instrument) satisfying the requirements of paragraph (q)(3)(vii)(C) of this section has been issued in connection with the divorce.
(B) [Reserved]
(C) Applicable requirements. This paragraph (q)(3)(vii)(C) is satisfied if the qualified domestic relations order (or divorce or separation instrument) issued in connection with the divorce--
(1) Provides that the former spouse is entitled to the survivor benefits under the contract;
(2) Provides that the former spouse is treated as a surviving spouse for purposes of the contract;
(3) Does not modify the treatment of the former spouse as the beneficiary under the contract who is entitled to the survivor benefits; or
(4) Does not modify the treatment of the former spouse as the measuring life for the survivor benefits under the contract.
(4) Rules of application―
(i) Rules relating to premiums―
(A) Reliance on representations. For purposes of the limitation on premiums described in paragraph (q)(2) of this section, unless the plan administrator has actual knowledge to the contrary, the plan administrator may rely on an employee's representation (made in writing or such other form as may be prescribed by the Commissioner) of the amount of the premiums described in paragraph (q)(2)(ii)(B) of this section, but only with respect to premiums that are not paid under a plan, annuity, or contract that is maintained by the employer or an entity that is treated as a single employer with the employer under section 414(b), (c), (m), or (o).
(B) Consequences of excess premiums and correction. If an annuity contract fails to be a QLAC solely because a premium for the contract exceeds the limits under paragraph (q)(2) of this section, then the contract is not a QLAC beginning on the date on which the premium is paid and the value of the contract may not be disregarded under §1.401(a)(9)-5(b)(4) as of the date on which the contract ceases to be a QLAC (unless the excess premium is returned to the non-QLAC portion of the employee's account in accordance with the next sentence). However, if the excess premium is returned (either in cash or in the form of a contract that is not intended to be a QLAC) to the non-QLAC portion of the employee's account by the end of the calendar year following the calendar year in which the excess premium was originally paid, then the contract will not be treated as exceeding the limits under paragraph (q)(2) of this section at any time, and the value of the contract will not be included in the employee's account balance under §1.401(a)(9)-5(b)(4). If the excess premium (including the fair market value of an annuity contract that is not intended to be a QLAC, if applicable) is returned to the non-QLAC portion of the employee's account after the last valuation date for the calendar year in which the excess premium was originally paid, then the employee's account balance for that calendar year must be increased to reflect that excess premium in the same manner as an employee's account balance is increased under §1.401(a)(9)-7(b) to reflect a rollover received after the last valuation date. If the excess premium is returned to the non-QLAC portion of the employee's account as described in paragraph (q)(4)(ii)(B) of this section, it will not be treated as a violation of the requirement in paragraph (q)(1)(iv) of this section that the contract not provide a commutation benefit.
(ii) Dollar and age limitations subject to adjustments―
(A) Dollar limitation. The $200,000 amount under paragraph (q)(2)(ii) of this section will be adjusted at the same time and in the same manner as the limits are adjusted under section 415(d), except that--
(1) The base period is the calendar quarter beginning July 1, 2022; and
(2) The amount of any increment to the limit that is not a multiple of $10,000 will be rounded to the next lowest multiple of $10,000.
(B) Age limitation. The maximum age set forth in paragraph (q)(1)(ii) of this section may be adjusted to reflect changes in mortality, with any adjusted age to be prescribed by the Commissioner in revenue rulings, notices, or other guidance published in the Internal Revenue Bulletin. See §601.601(d) of this chapter.
(C) Prospective application of adjustments. If a contract fails to be a QLAC because it does not satisfy the dollar limitation in paragraph (q)(2)(ii) of this section or the age limitation in paragraph (q)(1)(ii) of this section, any subsequent adjustment that is made pursuant to this paragraph (q)(4)(ii) will not cause the contract to become a QLAC.
(iii) Determination of whether contract is intended to be a QLAC—
(A) Structural deficiency. If a contract fails to be a QLAC at any time for a reason other than an excess premium described in paragraph (q)(4)(i)(B) of this section, then, as of the date of purchase, the contract will not be treated as a QLAC (for purposes of §1.401(a)(9)-5(b)(4)) or as a contract that is intended to be a QLAC (for purposes of paragraph (q)(2) of this section).
(B) Roth IRAs. A contract that is purchased under a Roth IRA is not treated as a contract that is intended to be a QLAC for purposes of applying the dollar limitation rule in paragraph (q)(2)(ii) of this section. See A-14(d) of §1.408A-6. If a QLAC is purchased or held under a plan, annuity, account, or traditional IRA, and that contract is later rolled over or converted to a Roth IRA, the contract is not treated as a contract that is intended to be a QLAC after the date of the rollover or conversion. Thus, premiums paid with respect to the contract will not be taken into account under paragraph (q)(2)(ii) of this section after the date of the rollover or conversion.
(iv) Certain contract features permitted for QLACs―
(A) Participating annuity contract. An annuity contract does not fail to satisfy the requirement of paragraph (q)(1)(vii) of this section merely because it provides for the payment of dividends described in paragraph (n)(3)(iii) of this section.
(B) Contracts with cost-of-living adjustments. An annuity contract does not fail to satisfy the requirement of paragraph (q)(1)(vii) of this section merely because it provides for a cost-of-living adjustment as described in paragraph (o)(2) of this section.
(v) Group annuity contract certificates. The requirement under paragraph (q)(1)(vi) of this section that the contract state that it is intended to be a QLAC when issued is satisfied if a certificate is issued under a group annuity contract and the certificate, when issued, states that the employee's interest under the group annuity contract is intended to be a QLAC.
[Added by T.D. 9130, 69 FR 33288-33302, June 15, 2004; corrected at 69 FR 68077, Nov. 23, 2004, and amended by T.D. 9459, 74 FR 45993-45994, Sept. 8, 2009; T.D. 9673, 79 FR 37633-37643, July 2, 2014, corrected at 79 FR 45682-45683, Aug. 6, 2014; T.D. 9930, 85 FR 72472-72503, Nov. 12, 2020. Revised by T.D. 10001, 89 FR 58886-58954, July 19, 2024.]
