At the end of 2003, the IRS and Treasury Department issued regulations imposing complex additional disclosure obligations for distributions under defined benefit (and certain defined contribution) retirement plans. Most significantly, the new regulations clarified what information would need to be disclosed with respect to the "financial effect" of choosing among available distribution forms, and imposed a new "relative value" disclosure requirement. Basically, the relative value disclosure rules required administrators to convert all available distribution forms to a single form, using reasonable actuarial assumptions, and then disclose to participants the relative values of those converted distribution forms. The new rules were to apply to distributions with annuity starting dates after September 2004.

In response to several requests (including Groom Law Group's comment letter), the Agencies extended the effective date for these new disclosure requirements for most distributions. Ann. 2004-58 (June 30, 2004). In general, the new disclosure rules will only begin to apply to distributions with annuity starting dates after January 2006.

Importantly, the Agencies did carve out from this extension disclosures with respect to certain lump sums and related distribution forms. In particular, plan administrators will need to continue to provide enhanced "financial effect" and "relative value" disclosures for distributions with annuity starting dates after September 2004, if –

• They are "subject to the requirements of § 417(e)(3) of the Code (e.g., single sums, distributions in the form of partial single sums in combination with annuities, or installment payment options)"; and
• Their actuarial present value is less than the actuarial present value of the plan's qualified joint and survivor annuity (QJSA).

In practice, it appears the early effective date will apply only where plans provide subsidized early retirement benefits, but calculate lump sums based on participants' normal retirement benefits (i.e., without the subsidy). Plan administrators can start providing these additional disclosures for distribution forms not subject to the extension as early as July 1, 2004. That way, even a participant who receives a distribution notice in early July and chooses to wait as long as possible (i.e., 90 days) to commence his or her benefit will have received appropriate disclosure for a post-September commencement date. Alternatively, plan administrators may prefer to delay providing the additional disclosures until September 1, with the understanding that follow-up disclosures will be needed for participants (if any) who received a distribution package prior to September 1, but who choose an annuity starting date after September.

Significantly, the extension of the effective date should allow plan sponsors to coordinate their compliance activities with new rules that will allow the elimination of optional forms that meet certain conditions. The Agencies issued proposed rules on the elimination of optional forms earlier this year and expect to issue final rules before the extended effective date for relative value disclosures.

Finally, the Announcement also addresses two other issues regarding the new disclosure requirements. First, the Announcement clarifies that a plan administrator that provides financial effect or relative value information on a "hypothetical-participant" basis may use reasonable estimates (as permitted with respect to participant-specific disclosures). Second, the Announcement states that the Agencies expect to issue regulations clarifying that a plan that calculates lump sums using IRS-imposed assumptions will not violate QJSA rules merely because the lump sum has a higher actuarial present value than the QJSA. This additional guidance is helpful because, in general, no optional form may be more valuable than the QJSA.