Forced Cashout of Required Minimum Distribution

[Guest PenGuy]

I have an individually designed 401(k) plan which was drafted by an ERISA attorney. We received a favorable determination letter on it, so I don't think we can be faulted by the IRS for applying the plan provision that I am going to describe.

The required minimum distribution in this 401(k) plan is a cashout of the 5% owners' total account balance. This 401(k) plan does not have QJSA as its normal form of payment so spousal consent is not as issue. The problem I am seeing is that the plan document seems to imply that we pay the required minimum distribution with or without participant consent (> $5,000).

First of all, can you force a complete distribution of a participant's total account balance upon reaching the plan's normal retirement age? Secondly, can you pay a participant his or her total account balance that is greater than $5,000 without his or her consent (spousal consent not required in my case)?

[Harwood]

§ 1.411(a)-11 Restriction and valuation of distributions.

© Consent, etc. requirements.

(4) Immediately distributable. Participant consent is required for any distribution while it is immediately distributable, i.e., prior to the later of the time a participant has attained normal retirement age (as defined in section 411(a)(8)) or age 62. Once a distribution is no longer immediately distributable, a plan may distribute the benefit in the form of a QJSA in a case of a benefit subject to section 417 or in the normal form in other cases without consent.

[QDROphile]

There is nothing wrong with a forcing out the entire account rather than the minimum distribution amount if the plan provides for it. You don't have to apologize for the provision and you do have to follow plan terms.