Defined Benefit Plan - Distribution Rules

[Guest slt]

May distributions from DB plans be made only on account of separation from service or plan termination? Where in the Code is this requirement? (I only see this for 401(k) plans). Thanks.

[KJohnson]

Look at 1.401-1(B)(1)(i) for the general rule. Also, generally for pension plans you only have to have a "separation from employment" rather than the "separation from service" required for 401(k) Plans. Look at GCM 39824.

[Wessex]

A separation from service is not required for a defined benefit plan, but a "retirement" is required. See Treas. Reg. Sections 1.401-1(a)(2)(i) and (B)(1)(i), which define "pension plan." I believe these regulations are still in effect to the extent not in conflict with later changes in law. The Service did at one time take the position that a separation from service was required for distributions from a pension plan, but later changed its position. See PLR 8614060 and GCM 39824 (1990). The GCM and a general information letter issued in 1990 or 1991 both reference Revenue Ruling 56-693 as modified by Revenue Ruling 60-323 as holding that a plan that permits withdrawals (of employer-provided benefits) prior to severance of employmnet or termination of the plan does not satisfy Section 401(a).

[Guest slt]

Thank you both so much for your help.

[John A]

This may be obvious, but the minimum required distribution rules of Section 401(a)(9) are an exception.

And I thought that a DB plan was allowed to commence payments to a participant who had reached normal retirement age under the plan, but I do not have a cite and I could be wrong.

Hope I didn't muddy any waters.

[KJohnson]

You can look at PLRs 8311071 and 8003135 for in-service distributions from a pension plan after normal retirement age.

Also the fact that you can still distribute to actively employed non 5% owners reaching age 70 1/2 even though these are no longer MRDs is evidence that you can have "in-service" distributions from pension plans.

[This message has been edited by KJohnson (edited 12-20-1999).]

[Guest slt]

Here's a tricky spin on the issue:

Does anyone know if a local agency's withdrawal from a state retirement system

constitutes a plan termination for defined benefit distribution purposes? In other words, if a local agency participates in a state's retirement system plan and then elects instead to withdraw from such system (and establish its own plan), has the former "plan" been terminated? Can the participants elect to recieve a distribution? (Let's assume the plan document permits it).

Thanks.