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Benefit Election - Post age 70-1/2


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When an employee reaches age 70-1/2 and starts receiving minimum distribution (either as a 5% owner or for employees not affected by Small Business Job Protection Act), when does he elect his form of benefit?

Is the plan sponsor required to offer the employee the election at age 70-1/2 (and each later year), or can the plan sponsor force the employee to defer the eleciton until actual retirement?

In the first alternative, at age 70-1/2, the employee might elect a J&50, and be locked into that form. Then a year later, he might elect a life annuity for the additional benefit earned. Then a year later, he might elect a lump sum for the additional benefit earned, etc. (Wonderful for plan administration.)

In the second alternative, he waits until he actually retires. If he dies while active, his death benefit is based on the active employee rules (i.e., the 50% survivor benefit if he is married).

What is done in practice? What cites are there? Does this have to do with Annuity Starting Date?

[The situation is that the plan sponsor offers lump sums as a benefit form. If the employee can elect his benefit form at 70-1/2, he can elect a lump sum. If he has to wait until actual retirement and he dies while active, his spouse would get the 50% survivor piece. The plan sponsor would like the latter, to encourage him to retire.]

Help.

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