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"Ad Hoc" distributions - protected benefit?


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Just checking myself - ERISA 403(b) plan allows "ad hoc" distributions - i.e. partial withdrawals for terminated participants. Is it allowable to eliminate this option for current accrued benefits? (Plan provides for lump sum distribution.) Note that this is not an "in service" distribution question.

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Look at CFR  Sec 1.411(d)-4 - 411(d)(6) protected benefits, A-1 (3)optional forms of benefit and the extensive examples  in (b) optional forms of benefit.

My reading says this is a 411(d)(6) protected benefit.

Patricia Neal Jensen, JD

Vice President and Nonprofit Practice Leader

|Future Plan, an Ascensus Company

21031 Ventura Blvd., 12th Floor

Woodland Hills, CA 91364

E patricia.jensen@futureplan.com

P 949-325-6727

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Thanks for the response.

Yeah, that's where I was coming out. I was hoping that a valid argument could be made along the following lines:

It is permissible to amend a DC plan to eliminate FORMS of benefit (installment, etc.) as long as a lump sum distribution remains available. For this post-severance distribution, a distribution is still available at any TIME, just not at multiple times. Since it is available at any time, and since it is permissible to offer only lump sum, it is ok to amend to remove the partial distribution option for these post-severance payments for current accrued benefits.

Quite a stretch, I know, but I didn't know if anyone has seen/done it, etc...

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But doesn't Sec 1.411(d)-4 - 411(d)(6) protected benefits, A-2(e) provide an exception that allows the ad-hoc optional form to be eliminated as long as the single-sum form of benefit is available?

(e) Permitted plan amendments affecting alternative forms of payment under defined contribution plans -

(1) General rule. A defined contribution plan does not violate the requirements of section 411(d)(6) merely because the plan is amended to eliminate or restrict the ability of a participant to receive payment of accrued benefits under a particular optional form of benefit for distributions with annuity starting dates after the date the amendment is adopted if, after the plan amendment is effective with respect to the participant, the alternative forms of payment available to the participant include payment in a single-sum distribution form that is otherwise identical to the optional form of benefit that is being eliminated or restricted.

(2) Otherwise identical single-sum distribution. For purposes of this paragraph (e), a single-sum distribution form is otherwise identical to an optional form of benefit that is eliminated or restricted pursuant to paragraph (e)(1) of this Q&A-2 only if the single-sum distribution form is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the participant) except with respect to the timing of payments after commencement. For example, a single-sum distribution form is not otherwise identical to a specified installment form of benefit if the single-sum distribution form is not available for distribution on the date on which the installment form would have been available for commencement, is not available in the same medium of distribution as the installment form, or imposes any condition of eligibility that did not apply to the installment form. However, an otherwise identical distribution form need not retain rights or features of the optional form of benefit that is eliminated or restricted to the extent that those rights or features would not be protected from elimination or restriction under section 411(d)(6) or this section.

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