Cash-out rules for DB plans with employee contributions

[DTH]

I have an interesting scenario someone presented me. Can anyone confirm the finding below and what Code site they came from?

If a participant terminates and the actuarial equivalent vested accrued benefit calculated as of the date of termination does not exceed $5,000, the plan administrator will automatically distribute such amount to the terminated participant in a lump sum. Note that it does not look at the "small annuity rule".

If a terminated participant elects to withdraw employee contributions plus interest, participant and spousal consent is required if the present value of the TOTAL benefit (employer and employee) is greater than $5,000.

[Okay so far.]

After the terminated participant withdraws employee contributions, if the amount remaining is less than $100 per month a lump sum payment will be made in accordance with the small annuity rule. Note that before you get to the small annuity rule, the remaining benefit must be less than $100 per month. Thus, if it is greater than $100 per month, but the present value is less than $5,000, you DO NOT go to the small annuity rule. If the remaining benefit is less than $100, the small annuity rule provides that the plan administrator will pay the amount in a lump sum PROVIDED that participant and spousal consent is required if the present value is greater than $5,000. Thus, if you are in the small annuity rule (i.e. less than $100 per month) but the present value is more than $5,000 and the participant and spouse will not consent, the lump sum value cannot be paid out.

[Do you concur? What is the Code site? Couldn't find anything in 1.411(a) or 1.417(e).]

Thanks!

[MGB]

These "small annuity rules" were very common in plans administered by insurance companies a couple decades ago. The rules have since been overridden by the 5000 cashout rule under the Code. As long as the results are that anything in excess of 5000 PV has consent, then any more restrictive rules (i.e., annuities over 100 that are less than 5000 PV) are permissable. You will not find anything about a small annuity rule in the Code. If any of your combinations results in a cashout in excess of 5000 (inclusive of the employee contributions) that doesn't have consent, you are violating the Code. However, it doesn't appear that way.