Form of Distribution Dependent on Account Balance

[Guest cphs]

Is it a common plan design to require lump sum distributions below a certain dollar amount (for example, $10,000) and installment distributions above that amount? I'm not aware of any problems with this arrangement, but would appreciate feedback.

[stephen]

This is not a problem. We have many clients who have incorporated various break points in their distribution policy.

[RTK]

Is the installment distribution a BRF (benefit right or feature) that should be reviewed for 401(a)(4) discrimination?

[Guest cphs]

That's a good point. It appears that it is. Presumably you could solve that problem by permitting installments for all account balances, but then only permit lump sums below the designated threshold. Any other thoughts on this?

[RTK]

Take a look at IRS Reg. 1.401(a)(4)-4(b)(2)(ii)(D) - a requirement that vested accrued benefit or present value be less than a specified dollar amount is disregarded in determining employees to whom brf is available. Thus, current availability test would be ok.

This does not apply to the (facts and circumstances) effective availability test, but it seems unlikely that this would be an issue for a regular ongoing option.