Can plan provide the employer discretion as to timing of distribution?

[EGB]

For a number of reasons that I will not go into here (and that I know will not be apparent), I have a client that wants its plan to provide that it will make distributions within five plan years following termination of employment.

As participants terminate, the employer will decide when it wants to offer a distribution. So long as this discretion is not exercised in a discriminatory fashion (ie, in application, does not discriminate in favor of HCEs), can this be done? I realize that this sounds stupid, invites controversy in treating participants differently, and that it "smells bad", but the client is determined to do this if there is no legal impediment to doing so. Is there a statute, regulation, ruling, etc. that would prevent this?

[david rigby]

It does smell bad. But that probably does not necessarily invalidate it. The mere fact that the sponsor insists on this discretion (perhaps they prefer "flexibility"), indicates the posibility of discrimination. That is what smells bad.

IRS reg. 1.401(a)-4 (especially Q&A 3) addresses discretion, but it specifically focuses on the discrimination in favor of HCEs.

http://www.access.gpo.gov/nara/cfr/cfrhtml...26cfrv5_00.html

Plan sponsor should probably be able to defend its reasons for wanting this provision, and be able to demonstrate that there has been no prior discrimination.

[Medusa]

It would seem to me that 1.411(d)-4 Q/A 4 would preclude such use of employer discretion. Certainly the LRM's do.