29 C.F.R. § 4041.6 — Effect of failure to provide required information.

(a) General rule. Except as provided in paragraphs (b) and (d) of this section (or, where applicable, in part 4050 of this chapter), when a plan is closed out under § 4041.27 (in a standard termination) or § 4041.48 (in a distress termination), any benefit that is payable as an annuity under the provisions of the plan must be provided in annuity form through the purchase from an insurer of a single premium, nonparticipating, nonsurrenderable annuity contract that constitutes an irrevocable commitment by the insurer to provide the benefits purchased.

(b) Exceptions to annuity requirement. A benefit that is payable as an annuity under the provisions of a plan need not be provided in annuity form if the plan provides for an alternative form of distribution and either paragraph (b)(1) or (b)(2) of this section applies:

(1) The participant is not in pay status as of the distribution date, and the present value of the participant's total benefit under the plan, including amounts previously distributed to the participant, is $3,500 or less, determined in accordance with sections 411(a)(11) and 417(e)(3) of the Code and the regulations thereunder. The present value of such benefits shall be determined using the interest rate or rates as of—

(i) The date set forth in the plan for such purpose, provided that the plan provision is in accord with section 417(e)(3) of the Code and the regulations thereunder (substituting “distribution date” for “annuity starting date” wherever used in the plan); or

(ii) If the plan does not provide for such a date, the distribution date.

(2) The participant elected the alternative form of distribution in writing, with the written consent of his or her spouse, in accordance with the requirements of sections 401(a)(11), 411(a)(11), and 417 of the Code and the regulations thereunder.

(c) Optional benefit forms. Except as permitted by sections 401(a)(11), 411(d)(6), and 417 of the Code and the regulations thereunder, an annuity contract purchased to satisfy the annuity requirement shall preserve all applicable benefit options provided under the plan as of the termination date.

(d) Participating annuities— (1) General rule. Notwithstanding the requirement of paragraph (a) of this section that an annuity contract be nonparticipating, a participating annuity contract may be purchased to satisfy the annuity requirement if the plan can provide for all benefit liabilities and—

(i) All benefit liabilities will be guaranteed under the annuity contract as the unconditional, irrevocable, and noncancellable obligation of the insurer;

(ii) In no event, including unfavorable investment or actuarial experience, can the amounts payable to participants under the annuity contract decrease except to correct mistakes; and

(iii) As provided in paragraph (d)(2) of this section, no amount of residual assets to which participants are entitled will be used to pay for the participation feature.

(2) Plans with residual assets. If all or a portion of the residual assets of a plan will be distributed to participants—

(i) The additional premium for the participation feature must be paid from the contributing sponsor's share, if any, of the residual assets or from assets of the contributing sponsor; and

(ii) If the plan provided for mandatory employee contributions, the amount of residual assets must be determined using the price of the annuities for all benefit liabilities without the participation feature.