Any problems with a take-now-or-wait provision?

[John A]

Does anyone see any problem with a plan document provision that gives all plan participants the following 2 options: 1) take your distribution within 12 months of termination of employment, or 2) wait until normal retirement? Could a provision like this be considered prohibited coercion for participants with balances over $5,000 to take immediate distributions?

[MWeddell]

I'd caution a client that the provision you're suggesting may be challenged by the IRS and that you may not be able to get a favorable determination letter with that provision.

The 1995 IRS examination guidelines for QJSAs says that, just as you suspected, it imposes a significant detriment on a participant's right to defer distribution for participants whose vested accrued benefit exceeds $5,000. However, the IRS never issued a stronger authority (similar to Revenue Ruling 96-47) stating their position.

[Kirk Maldonado]

I've received dozens of determination letters on plans like that and it has never been challenged by the IRS.