Employee in the "restricted employee" category separated from service 2 years ago. Employee received but never returned paperwork regarding his pension benefit.
DB Plan terminated effective 1/1/09 and plans on making benefit distributions in early 2011.
Employee now wants a lump sum distribution of his benefit.
DB Plan is not 110% funded.
My question relates to the restriction on distributions from pension plans. Do these restrictions apply in the normal operation of the plan or during plan termination? I read Treasury Regulation § 1.401(a)(4)-5(b)(2) as restricting the benefits paid to certain “restricted employees” upon the termination of a defined benefit plan. However, I am being told by pension professionals that this rule only applies during normal operation of the plan and not during plan termination.
Any help is appreciated.

This is a little grey. If the Plan were making distributions to all participants at this time and the Plan was sufficient, then there would be no need for restirctions.

However, if the Plan was in a limbo period (e.g., waiting for IRS approval) and the Plan was not sufficient (even though the Plan Sponsor indicated they would make it sufficient), my gut is that the restrictions should apply. This allows for the possibility that the termination could be rescinded say because the Plan sponsor could not come up with the contributions to make the Plan sufficient.

Even though 401(a)(4) regs. provide for "pre-termination" restrictions, operationally the conditions apply until actual distributions are made.

If the Plan covers only HCEs, there is no discrimination. However, there may be other legal issues of having given preference to certain HCEs if the Plan is not sufficient at time of distribution to other participants.

In short, the client would do well to obtain a legal optinion.