MODEL AMENDMENTS FOR BIFURCATED DISTRIBUTIONS
IRS Notice 2017-44
Recently, the Internal Revenue Service (IRS) published Notice 2017-44 through which it provided Model Amendments that qualified defined benefit plan sponsors may use to amend their plan document when such plans offer bifurcated benefit distribution options to participants in accordance with the final regulations issued under Code Section 417(e).
As part of our on-going support of the document and changes in the law that may affect the Defined Benefit Plan, Document Agility, Inc. is hereby making these Model Amendments available for your use should you need them. They are intended to be adopted on the employer level where necessary.
Is this a required amendment?
The Model Amendments are optional and a plan that provides for a bifurcated distribution option is not required to include the specific model language published by the IRS. The current base plan document (approved through EGTRRA) does not provide bifurcated benefits, however, if you had customized the Defined Benefit Plan for any of your clients to provide for such benefits, we suggest you contact the employer sponsor to discuss the impact of adopting the Model Amendment.
If a Defined Benefit Plan provides a bifurcated benefit (payable partly in a lump sum and partly as an annuity) the plan should adopt an amendment to clarify whether it calculates the bifurcated benefits using the “explicit” method (Section 417(e) factors are used to calculate each form) or the “implicit” method (Section 417(e) factors apply to calculate the lump sum portion, but plan factors apply to calculate the annuity). Until the Plan Year beginning on or after January 1, 2017, plans were required to apply to the explicit method, however, the notice allows a plan to apply the implicit method beginning in the 2017 plan year without anti-cutback concerns provided the plan adopts the implicit method on or before December 31, 2017.
What you need to do
Any amendment that is adopted on or before December 31, 2017, is eligible for the limited relief from the application of the anti-cutback provisions of Code §411(d)(6) as provided under Regulations §1.417(e)-1(d)(7)(iv) provided:
such amendment is not modified (except as otherwise permitted);
the plan is operated in accordance with the amendment from and after the effective date of the amendment; and,
in accordance with Regulations §1.417(e)-1(d)(7)(iii)(D), if a plan has an early retirement benefit, a retirement-type subsidy, an optional form of benefit, or an ancillary benefit that applies only to a portion of a participant’s accrued benefit, and the plan provides for a distribution of some (but not all) of the participant’s accrued benefit, the plan specifies the portion of the participant’s total accrued benefit that is paid by that partial distribution.
Plan sponsors may also limit the extent to which bifurcation is available with respect to a participant’s accrued benefit, specify the number of forms of distribution among which an accrued benefit may be bifurcated, or limit the combinations of forms that are available for this purpose. The Implicit Bifurcation Amendment may not be used with respect to distributions for which Regulations §1.417(e)-1(d)(7)(iii)(C) prohibits the use of implicit bifurcation.
If you have any questions in the meantime, please do not hesitate to contact us.