IRS Proposed Regulations Would Permit Retroactive Annuity Starting Dates

On January 17, 2001, the Internal Revenue Service published proposed regulations that would allow a qualified joint and survivor annuity ("QJSA") explanation to be provided on or after the annuity stating date, if so allowed by the plan and so elected by the participant. This will allow plans to commence payments retroactively where the participant has not made any elections by his/her annuity starting date. The proposed regulations further define payment procedures for such cases to ensure that the notice and election occur at the same time as the commencement of benefits.

These proposed regulations interpret and expand Internal Revenue Code ("Code") Section 417(a)(7) which was added by the Small Business Job Protection Act of 1996 and which was effective for plan years beginning after 1996. Under the new proposed regulations, a "retroactive annuity starting date" can only be used if the plan contains a provision specifically permitting it and the participant elects to so use such provision. It should be noted that the proposed regulations do not require that plans maintain such provision, thereby allowing plans to continue with the current procedure of providing the QJSA explanation before the annuity starting date.

Under the proposed regulations the election would place the participant in approximately the same situation he or she would have been in had benefit payments actually commenced on the retroactive annuity starting date. Accordingly the future periodic payments to a participant who makes an election must be the same as the periodic payments that would have been paid had payments actually commenced on the retroactive annuity starting date and the participant must further receive a make-up amount to account for missed payments. The proposed regulations further require an interest adjustment from the date the payments would have been made to the date they were actually paid. The retroactive annuity date cannot be earlier than the date the participant could have started receiving benefits if the payments had commenced at the earliest date permitted under the provisions of the plan (ie. could not be before termination date or early/normal retirement date).

The proposed regulations clarify that the notice, spousal consent and election rules that currently exist under Code Section 417 and the regulations thereunder, would apply to the retroactive payment of benefits but with several modifications. These modifications would allow a participant to waive the QJSA, with spousal consent, if applicable, as long as distribution commenced no more than ninety days after the QJSA explanation is provided, with exceptions made for administrative delays.