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I inherited an overfunded one-participant plan. The participant is the 70 year old owner with three year average pay of $100,000. Maximum 415 lump sum is about $1,000,000, but plan has $1,560,000. She could take the lump sum and move the rest to a qualified replacement plan, but the company won't have income going forward (no way to use up the excess) and she wants to close it down (can't have a plan with no sponsor). So I have three questions: 1. If she were to use a Retroactive Annuity Starting Date of her 65th birthday, the back payments with interest would be $560,000. This amount would not be rolled over. Then she could use the $1,000,000 to purchase a life annuity with payments of $100,000 per year. Is this correct? 2. If she first took her RASD payments, could she then take her lump sum of $1,000,000? Or is this a 415 violation? 3. What if she were 71 (70-1/2 in 2019) and already took her RMD for 2019 and 2020. Does this affect the answers to 1 & 2?

A participant owns 50% of the company and recently retired. The participant wants to take a full distribution. Per the most recent annual report, the account balance is about 44% of the total plan assets. I'm concerned that a full distribution from the pooled account might affect the rest of the participants’ account balances negatively. Any concerns or issues with allowing the distribution? Thanks in advance.

A brand new DB plan is started 2-1-2018, plan year ends 1/31. It excludes years of service prior to 2-1-2018 for vesting purposes. Vesting is a 3-year elapsed-time cliff. One participant is also a 20% owner and they are 71 years old now. The owner becomes fully vested on 1/31/2021. The first RMD is the accrual on 12/31/2018, but it is not vested, so it gets added to the next year's RMD. The second RMD is the accrual on 12/31/2019 plus the prior unpaid (nonvested) RMD, but it is still not vested, so it gets added to the next years' RMD. The third RMD is the accrual on 12/31/2020 plus the prior amounts, but it is still not vested, so it gets added to the next year's RMD. By 12/31/2021, the participant must take the distribution of their RMDs. They terminate in 2021 and elect a lump sum payment. The RMD for a full lump payment can be calculated using the "Account Balance" method (like a DC plan). Can all of these RMD's be determined using the account balance method, or must the 3 prior year's RMDs be based on the DB annuity calculation method?

In a governmental 401a defined benefit plan, each monthly annuity is paid in the month after it accrues (i.e. in February the member is paid the annuity amount accrued in January). When a member dies, say 15 days into a month, his or her designated beneficiary is entitled to a one-time, lump sum distribution of the deceased member's prorated annuity amount (i.e. those 15 days in the month of the member's death that they were alive and accrued an annuity amount). Is this prorated annuity amount paid upon the member's death considered an eligible rollover distribution or a nonperiodic payment? We are trying to determine whether we should apply the 20% federal withholding on ERDs or the 10% federal withholding on nonperiodic payments with an option for no withholding.

Defined Benefit pension plan permits Lump Sum benefit upon retirement (Normal or Early at Age 55). Participant just turned 55, wants to "retire" and take his large Lump Sum payment, and return to covered employment immediately after. He has expressed to the plan administrator and his employer that he has no intention of retiring, but wants to take his lump sump payment now. The Plan defines Retirement as follows: Retirement - The term "Retirement" shall mean termination of employment for reasons other than by death after a Participant has fulfilled all of the requirements for entitlement to a Normal, Early, Normal at Age Sixty (60), Normal at Age Fifty-Five (55), or Disability Retirement Pension. Retirement shall be considered as commencing on the day immediately following a Participant's last day of employment, as determined in the sole and absolute discretion of the Trustees. Thoughts on whether this is permissible?

DB plan allows for bifurcated distributions, i.e., a partial lump sum with the remainder as an annuity. How do you calculate the RMD for such a distribution? Participant has reached required beginning date and wants to roll over as much of the lump sum as possible--but any portion that is attributable to the RMD isn't eligible for rollover. The RMD regs tell you how to calculate the RMD for an annuity or a total lump sum, but not a bifurcated distribution. Cheers.

Plan sponsor will terminate its pension plan in a standard termination. The plan currently has no lump sum distribution option, other than forced cash-outs for small benefits under $1,000, and other cash-outs (e.g., to an IRA) between $1,000 and $5,000. The sponsor wants to add a lump sum distribution option for participants who are not in benefit payment status, to be used in connection with the standard termination. So far, so good. The sponsor, however, wants to specify a lookback month for determining the applicable interest rate to be used in determining the lump sums under the new distribution option that is different than the lookback month used for determining small benefit cash-outs. Is this do-able? Or, does it violate the 417(e)/411(d)(6) rules? Specifically, does it run afoul of the regulations at 1.417(e)-1(d)(4), which provides in relevant part: "The time and method for determining the applicable interest rate for participant's distribution must be determined in a consistent manner that is applied uniformly to all participants in the plan." Would it be OK to get by this issue by "protecting" the participants with small benefits by giving them the benefit of the greater of lump sums determined under the two interest rates. (Everyone else will have a lump sum calculated under the new interest rate.) Thanks!

We are in the midst of a standard termination. We want to offer a lump sum window to terminated vested participants. Can we offer this same lump sum window to active participants? Is that legally permissible? The more people that take lump sums, the more accurate our annuity pricing will be. Thus, we wanted to see about offering the lump sum window to actives. Thanks for any thoughts.

Say a plan has two options for their forms of distribution - QJSA and lump sum. If the plan allows for in-service withdrawals (with spousal consent), can these be limited to lump sum so that if a participant wants an annuity payment under the plan it must be a QJSA at retirement age and only lump sum before then?

When calculatiing the maximum benefit a participant can recieve when a Cash Balance plan has an offset feature, is the maximum benefit (the 415 limit say $2.6 Million) before or after the offset? If the Offsetting profit sharing plan for example has $2 million. Is the lump sum beneif only $600k or is it still $2.6 million, which would make the full benefit $4.6 Million? Thanks

The general rule is that the QJSA must be at least as valuable as any other optional form of payment. The only exception is when the 417(e) factors, standing alone, cause a lump-sum to be more valuable. We've come across a plan that grandfathers a lump-sum for all pre-89 service. It's more valuable than the QJSA for the same service, but not because of 417(e)--it's because the lump sum is calculated with an early-retirement reduction factor that is twice as favorable as the ERF for any annuity form. I guess whoever drafted it took the position that the most-valuable rule simply doesn't apply to pre-89 accruals. It looks like the most valuable rule first appears expressly in the 1988 batch of regulations that added it to Q&A 16 of § 1.401(a)-20 and to the definition of "QJSA" in § 1.401(a)-11(b)(ii). Those regs were generally effective for plan years beginning on/after January 1, 1989. To my ear, the Preamble to those regs makes the most-valuable rule sound like a continuation of a previous IRS position, and of course the statutory definition hadn't changed after REA. Has anyone heard of an option to grandfather pre-89 benefits against application of the most-valuable rule? Cheers, Ü

Is there a place I can find in the IRS Regulations that specifically explains that within a qualified plan, the Dividends from the Employer Stock that are paid out to a participant, do not affect that participant's Lump Sum Eligibilty? Even after a qualifying event? Also, is there an IRS regulation that explains what actually disqualifies a participant from lump sum eligibility?