Is IRC 414(k) still in effect?

[Guest Carol the Writer]

I have in my possession an old copy of the Code, and I would like to know whether it still possible for a late retiree to segregate his normal retirement lump sum and separately invest it, as IRC 414(k) once provided. Unfortunately, my client is a one-life group, and I am trying to minimize his tax liability on asset reversion.

Any ideas would be appreciated.

[Ron Snyder]

Current IRC Section 414(k):

"(k) Certain plans

A defined benefit plan which provides a benefit derived from employer contributions which is based partly on the balance of the separate account of a participant shall--

(1) for purposes of section 410 (relating to minimum participation standards), be treated as a defined contribution plan.

(2) for purposes of sections 72(d) (relating to treatment of employee contributions as separate contract), 411(a)(7)(A) (relating to minimum vesting standards), 415 (relating to limitations on benefits and contributions under qualified plans), and 401(m) (relating to nondiscrimination tests for matching requirements and employee contributions), be treated as consisting of a defined contribution plan to the extent benefits are based on the separate account of a participant and as a defined benefit plan with respect to the remaining portion of benefits under the plan, and

(3) for purposes of section 4975 (relating to tax on prohibited transactions), be treated as a defined benefit plan."

[flosfur]

I have in my possession an old copy of the Code, and I would like to know whether it still possible for a late retiree to segregate his normal retirement lump sum and separately invest it, as IRC 414(k) once provided.  Unfortunately, my client is a one-life group, and I am trying to minimize his tax liability on asset reversion.

Any ideas would be appreciated.

IRS disagrees on that - i.e. you cannot avoid or minimize reversion by doing this.

They have said so, in some of the Q&A sessions I have attended, when this was brought up, even when people argued that they have an approved document with the 414(k) language!

[SoCalActuary]

You may have a valid point if you make a proper lump sum distribution from the DB at an eligible distribution point, such as NRD. Spousal consent is also needed. Then you make a full IRA rollover distribution. Thereafter, once the funds are in the IRA, you may elect to roll them back into the DB. (But why would you, except for asset protections?)

This two-part rollover scenario would allow you to use 414k type accounts, because it truly is not DB benefits anymore.