Retirement Equity Technical Corrections Act of 1986

(Reported to House from the Committee on Education and Labor with amendment, H. Rept. 99-526 (Part II))

Retirement Equity Technical Corrections Act of 1986 - Amends the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA) to make technical corrections and other revisions related to the Retirement Equity Act of 1984 (REA).

Sets forth amendments related to REA modifications of minimum participation and vesting standards for employee benefit plans.

Requires class-year plans, in general, to provide that a participant's rights to benefits derived from employer contributions for any plan year are nonforfeitable not later than when such participant has performed services for the employer as of the close of each of five plan years (whether or not consecutive) after the plan year for which the contributions were made. Allows for such plans to provide for forfeiture of such rights if the participant has not performed such services as of the close of each of any five consecutive plan years after such plan year (i.e., a five-year break in service).

Requires, for purposes of determining whether any distribution which becomes payable to the recipient on account of the employee's separation from service is a lump sum distribution, that the balance to the credit of the employee be determined without regard to any increase in vesting which may occur if the employee is reemployed by the employer. Provides for recapture of such reduction in tax, in certain cases.

Sets forth special rollover rules with regard to treatment of potential future vesting and treatment of subsequent distributions. Provides, in determining whether a distribution to an employee because of separation from service is eligible to be rolled over to another plan or to an individual retirement account (IRA), that the balance to the employee's credit is to be determined without regard to any increased vesting that may occur if the employee returns to service with the employer. Provides that any subsequent distributions (except one made without the participant's consent) to the employee from the plan in which increased vesting occurs are not eligible for ten-year income averaging or capital gains treatment if: (1) the employee excluded the distribution from income on account of a rollover; (2) the employee is subsequently reemployed by the employer; and (3) the vested percentage of benefits accrued before the separation from service is thereby increased.

Revises provisions for treatment of withdrawal of mandatory contributions. Permits a plan to require repayment of withdrawn amounts no later than: (1) five years after the date of withdrawal; or (2) in the case of a withdrawal on account of separation from service, the earlier of five years after the date of subsequent re-employment by the employer or five consecutive one-year breaks in service.

Reduces from 25 years to 21 years the age which plan participants may be required to attain for purposes of simplified employment pensions.

Sets forth amendments related to REA requirements of joint and survivor annuity and preretirement survivor annuity.

Provides that qualified preretirement survivor annuity rules apply in the case of death before the annuity starting date.

Provides that qualified joint and survivor annuity rules apply in the case of death on or after the annuity starting date.

Provides that the transferee plan rule applies only with respect to: (1) transfers made after December 31, 1984; and (2) the transferred assets (and income therefrom) if the plan separately accounts for assets and any income therefrom.

Requires spousal consent for: (1) using plan assets as security for loans; and (2) changes in designations.

Provides that, in the case of a participant hired after age 35, the period for giving notice to the participant of the right to waive a qualified preretirement survivor annuity is a reasonable period after the date of hire.

Revises provisions relating to: (1) nonforfeitable accrued benefits; (2) vested participants; and (3) qualified preretirement survivor annuities.

Makes specified election period and notice requirements for spousal consent applicable to: (1) a waiver of a survivor benefit under a plan exempt from preretirement survivor annuity and joint and survivor annuity requirements; (2) pledging of the participant's accrued benefit as security for a loan; (3) distribution of amounts after the annuity starting date; and (4) immediate distribution of amounts over $3,500.

Provides that specified exceptions to notice requirements apply to fully subsidized plans only if benefits may not be waived (or another beneficiary selected).

Provides that, in the case of a benefit not payable in the form of an annuity, the term "annuity starting date" means the day on which such benefit is to be paid.

Sets forth amendments related to special rules for assignments in divorce, etc., proceedings (which REA added to IRC and ERISA).

Provides that such special rules for determining the taxability of benefits subject to a qualified domestic relations order apply only to distributions made to an alternate payee who is the spouse or the former spouse of the participant.

Specifies that the 18-month period during which benefits may be deferred begins with the date on which the first payment would be required to be made under the domestic relations order if there were no deferral.

Eliminates the requirement that a plan administrator must establish a separate or escrow account for amounts that would have otherwise been paid during the 18-month period. Requires, instead, that the plan administrator separately account for such amounts.

Directs the Secretary of the Treasury to prescribe regulations to coordinate specified requirements (and regulations issued by the Secretary of Labor thereunder) affecting qualified domestic relations orders with the overall qualification requirements.

Declares that qualified domestic relations provisions do not apply to any plan to which specified assignment or alienation restrictions do not apply.

Provides that payment of benefits by a pension plan in accordance with the applicable requirements of a qualified domestic relations order shall not be treated as a garnishment of wages for purposes of specified provisions of the Consumer Credit Protection Act.

Provides that, to the extent provided in a qualified domestic relations order, a spouse of a participant is not treated as a spouse for purposes of certain survivor benefits under IRC and ERISA.

Waives certain distribution requirements (which prohibit payment of benefits before termination of employment) if a plan makes specified payments which are worth $3,500 or less to any alternate payee pursuant to a qualified domestic relations order.

Sets forth amendments related to the requirement under IRC, as amended by REA, that a written explanation be given to recipients of distributions eligible for rollover. Defines "eligible rollover distribution" for purposes of such requirement.

Sets forth amendments related to provisions, under ERISA as amended by REA, for the treatment of certain plan amendments as reducing benefits.

Sets forth amendments related to the REA transitional rule for requirement of joint and survivor annuity and preretirement survivor annuity to eliminate certain double death benefits.

Sets forth amendments related to REA provisions for treatment of certain participants who perform services on or after January 1, 1976.