Restricting optional forms of distribution

[Guest guppy]

I recall that a DB plan can not allow a participant to elect an optional form of distribution with guaranteed payments beyond his or her life expectancy.

For example, can an 80 year old retiree elect a 20 C&C?

Anybody have a code section for this? Does it exist or have I finally lost my mind?

[Mike Preston]

I don't recall the limitation you mention, but it doesn't seem like a bad one to implement voluntarily. The only restriction I'm aware of is that under 401(a)(9) a distribution pattern must be established that has the likelihood of paying more than 50% over the life expectancy. This is just a top-of-the-head recollection, though, so I invite others to confirm or refute.

[mwyatt]

Anyone remember madly mailing out 242(b) elections in Christmas of '83? I'll concur with Mike Preston as this type of election seems dubious, barring a legitimate 242(b) election. Hopefully someone with more time can come up with the correct site from the 401(a)(9) regs.

[Mike Preston]

Thanks, mwyatt, that was exactly where the cite came from. The 242b2 elections (which I think all of us in the business at that point dealt with on a super-rush basis) were carved out exceptions to the newly minted 401a9 rules. Hence, the rule I'm talking about (at least 50% during life expectancy) was the rule you needed to follow in order to escape 401a9.

Well, you can't do that now, so the regular rules of 401a9 apply and the rule that guppy mentions is a specific requirement of 401(a)(9)(A)(ii). There are some twists and turns there if the designated beneficiary of the 80-year old is the spouse and is more than 10 years younger. For example the new tables indicate that the applicable distribution period for a participant age 80 and a spouse beneficiary age 68 is 20.0 years.

I therefore think that who the designated beneficiary of the 80 year old matters. If the designated beneficiary is not the spouse, then it appears the longest distribution period can be no longer than 18.7 years.

[Guest guppy]

To simplify things, there is no spouse.

So, if I'm understanding your responses correctly, the Plan can not allow the 20C&C to the 80 year old retiree since this would exceed the Distribution Period of 18.7 years based on the Uniform Lifetime Table in Reg. S 1.401(a)(9)-9, correct?

That's what I was thinking all along, but I'm still struggling to find any guidance that says exactly that...

Thanks for the responses so far. Anybody else?

[Guest guppy]

Guidance found in the most obvious place - the plan document.

A guaranteed payment can not exceed the the life expectancy of the participant or the joint of expectancy of the participant and spouse, if beneficiary.