3805.01. Are there any situations in which a defined benefit plan participant’s benefit must, or may, be increased?polearyrcline212005-04-08T19:45:00Z2015-07-27T14:47:00Z2015-07-27T14:47:00Z36093477Hewlett-Packard Company2884078142007-10-05T00:00:00ZTaxFactsDefaultArticleSite Map/Life Insurance/Income Taxation/Proceeds/Living/Disposition/Sale or Purchase of a Contract115140262-00-tf1.xml263.00;#2099;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 1If the owner of a life insurance or endowment contract sells the contract, such as in a life settlement, what are the income tax consequences to the seller?74200.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-14T23:41:49Z3805.01. Are there any situations in which a defined benefit plan participant’s benefit must, or may, be increased?Actuarial Increase RequirementIf an employee (other than a 5 percent owner) retires after the calendar year in which the employee reaches age 70½, a defined benefit plan must actuarially increase the employee’s accrued benefit to take into account any period after age 70½ during which the employee was not receiving benefits under the plan..IRC Sec. 401(a)(9)(C)(ii). The increase must be provided starting on April 1 of the year after the employee reaches age 70½ and ending on the date when required minimum distributions commence in an amount sufficient to satisfy IRC requirements..Treas. Reg. §1.401(a)(9)-6, A-7(a). This actuarial increase requirement does not apply to (1) plans that provide the same required beginning date (i.e., April 1 of the year after the employee reaches age 70½) for all employees, regardless of whether they are 5 percent owners and make distributions accordingly, and (2) governmental or church plans..Treas. Regs. §§1.401(a)(9)-6, A-7(c), 1.401(a)(9)-6, A-7(d).Non-increasing Annuity RequirementExcept as otherwise provided below, annuity payments must be non-increasing, or must increase only: (1)in accordance with an annual percentage not exceeding that of an eligible cost-of-living index (e.g., one issued by the Bureau of Labor Statistics or certain others defined in the regulations); (2)in accordance with a percentage increase that occurs at specified times (e.g., at specified ages) and does not exceed the cumulative total of annual percentage increases in an eligible cost of living index (see (1)) since the annuity starting date; (3)in accordance with the extent of the reduction in the amount of the employee’s payments to provide for a survivor benefit upon death (if the beneficiary dies or is no longer subject to a QDRO); (4)in accordance with a plan amendment; or (5)to allow a beneficiary to convert the survivor portion of a joint and survivor annuity into a single sum distribution upon the employee’s death..Treas. Reg. §1.401(a)(9)-6, A-14(a).Additional Permitted Increases If the total future expected payments from an annuity purchased from an insurance company exceed the total value being annuitized, payments under the annuity will not fail to satisfy the non-increasing payment requirement merely because the payments are increased in accordance with one or more of the following: (1)by a constant percentage, applied not less frequently than annually; (2)to provide a final payment on the employee’s death that does not exceed the excess of the total value being annuitized over the total of payments before the death of the employee; (3)as a result of dividend payments or other payments resulting from certain actuarial gains; and (4)an acceleration of payments under the annuity (as defined in the regulations)..Treas. Regs. §§1.401(a)(9)-6, A-14(c), 1.401(a)(9)-6, A-14(e).In the case of annuity payments made by a qualified defined benefit plan (i.e., paid directly from the trust rather than a commercial annuity), payments will not fail to satisfy the non-increasing payment requirement merely because the payments are increased in accordance with one or more of the following: (1) by a constant percentage, applied not less frequently than annually, at a rate that is less than 5 percent per year; (2) to provide a final payment on the death of the employee that does not exceed the excess of the actuarial present value of the employee’s accrued benefit (as defined in the regulations) over the total of payments before the death of the employee; or (3) as a result of dividend payments or other payments resulting from actuarial gain (measured and paid as specified in the regulations)..Treas. Regs. §§1.401(a)(9)-6, A-14(d), 1.401(a)(9)-6, A-14(e).An annuity contract purchased with an employee’s plan benefit from an insurance company will not fail to satisfy the rules of Section 401(a)(9) merely because of the purchase, provided the payments meet the foregoing requirements..Treas. Reg. §1.401(a)(9)-6, A-4. If the annuity contract is purchased after the required beginning date, the first payment interval must begin on or before the purchase date and the payment amount required for one interval must be made no later than the end of that payment interval..Treas. Reg. §1.401(a)(9)-6, A-4.