Distribution from DB

[Randy Watson]

An owner/participant in a DB plan would like to take distributions and avoid the 10% early withdrawal penalty. He will continue to work, so we will have to figure out a way to separate him from service, but that is another issue. Assume that there is a distribution event. Based on the facts, it appears that the only reasonable way to do this is to use the period payment exception to 72(t). The problem is that the owner/participant does not want to receive periodic payments based on their entire benefit; they just want to receive periodic payments based on a portion of their benefit. The three approved methods of distribution seem to take the entire benefit into account: (1) RMD; (2) fixed amortization; (3) fixed annuitization. Is it permissible to base the periodic payments on only a portion of the benefit for purposes of the period payment exception to 72(t)?

[ERISAnut]

Sure, if you rollover the portion that you are trying to exempt to an IRA, and then 72(t) the IRA.

Not sure about the overall strategy as any periodic payments from a Qualified Plan that are exempt from the 10% penalty (prior to 59 1/2) would require the participant actually terminates. Furthermore, if the participant actually terminates employment in the year he turns age 55 (or later) then there is no 10% penalty anyway (with respect to the distribution from the qualified plan).

[Randy Watson]

This individual is well below age 55 and simply needs cash now.

[Belgarath]

I assume a participant loan won't be sufficient?

These "phony" terminations of an owner always make me squeamish. Bad enough when it is a NHC, but it seems like begging for trouble when you do it with an owner. However, apparently a lot of people disagree with my connservatism on this issue!

[Randy Watson]

Right, they're not interested in a participant loan. I share your view on phony terminations. Thanks.

[Randy Watson]

ERISAnut, do you know of any legal authority or commentary that would support rolling over a portion of the benefit to an IRA and take periodic distributions from the IRA?