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The Internal Revenue Service (IRS) has postponed the effective date of relative value disclosures in qualified plans for forms of payment other than lump sum-type options that are less valuable than the qualified joint and survivor annuity (QJSA) by a period of 15 months, from October 1, 2004, to February I, 2006. [Notice 2004-58] The postponement gives plan sponsors the opportunity to review the optional forms of benefit available in their plans, especially in light of the proposed regulations that would permit elimination of certain optional forms.
The concept of relative values appeared in Q&A 36 of Treasury Regulation Section 1.401(a)-20, which stated in part:
[F]or plan years beginning after December 31, 1988, participants must be furnished a general description of the eligibility conditions and other material features of the optional forms of benefit and sufficient additional information to explain the relative values of the optional forms of benefit available under the plan (e.g., the extent to which optional forms are subsidized relative to the normal form of benefit or the interest rates used to calculate the optional forms).
At that time, the IRS did not provide guidance on how to determine or disclose relative values. Plan sponsors generally responded by providing the dollar amount of each optional form and an explanation of the options, but typically did not compare the values of different optional forms.
The IRS first proposed regulations in October 2002 providing guidance for …