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Firm Requests Guidance on Annuity After Plan-to-Plan Transfer

MAY 24, 2022

Firm Requests Guidance on Annuity After Plan-to-Plan Transfer

DATED MAY 24, 2022
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May 24, 2022

Internal Revenue Service
U.S. Department of the Treasury
CC:PA:LPD:PR (REG-105954-20)
Room 5203
PO Box 7604
Ben Franklin Station, Washington, DC 20044

Re: Required Minimum Distribution Comments (REG-105954-20) RIN 1545-BP82

To Whom It May Concern:

Question

Is an annuity provided to a retired participant under the employer's Code section 401(a) defined benefit plan, following a plan-to-plan transfer of the participant's account balance from the employer's Code section 401(a) qualified defined contribution plan, subject to the new Code section 401(a)(9)(H)? Is the answer the same if the participant does a direct rollover of his or her account balance from the defined contribution plan to the defined benefit plan, and thereby receives the annuity under the defined benefit plan?

We reviewed the required minimum distribution proposed regulations, but did not find an answer to this question.

Discussion

A large corporate client has a Code section 401(a) qualified defined contribution plan (“DC Plan”) and a Code section 401(a) qualified defined benefit plan (“DB Plan”). For decades the DC Plan has allowed a participant to elect an annuity form of distribution. If that is elected, the participant's DC Plan account balance is transferred in a plan-to-plan transfer to the DB Plan, and the annuity is provided under the DB Plan, using the actuarial factors in the DB Plan.

New Code section 401(a)(9)(H) was added to the Code by Section 401 of the Secure Act. This new Code section eliminates the ability to do certain “stretch” payouts under a defined contribution plan.

For this purpose, a defined contribution plan includes all eligible retirement plans “as defined in [Code] section 402(c)(8)(B), other than a defined benefit plan described in clause (iv) or (v) thereof or a qualified trust which is a part of a defined benefit plan”. Accordingly, a Code section 401(a) qualified defined benefit plan would be excluded from these new rules.

Thank you for your attention to this issue.

Sincerely,

William D. Berry
Orrick, Herrington & Sutcliffe LLP
San Francisco, CA

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