Lump Sum distribution timing

[Guest msheather]

We are trying to figure out how much time a qualified plan has to make a distribution once the participant has signed his election forms electing to commence his accrued benefit in the form of a lump sum.

Let's assume a participant signs his election forms on July, 15, 2006. By what date would the DB plan be required to make this payment to the participant?

Thanks in advance for your assistance.

[Guest saeissler]

The plan document should say when distributions will be made, even if only to say "as soon as reasonable". The timing of distributions is a 411(d)(6) issue, and as such, the trustee can't be arbitrary about the timing of distributions, e.g. holding one distribution back and paying another. So if the document language is vague, the timing of the distribution should at least be reasonable and consistent with other distributions.

[FormsRstillmylife]

The election form would tell the participant the length of the election period - 30 to 90 days. The plan then has a reasonable period to process the election; so, a 90-day election period can mean say 90 + 10 days.

What is the real issue? Illiquid assets and a large lump sum could support a longer time. The plan fiduciaries have a duty to the remaining participants to sell assets at a reasonable market price.

Stalling until the QDRO arrives is a whole other issue.

[E as in ERISA]

But be careful. The 30 to 90 days is generally from the date of the notice(s), not the date of the participant election.

[Guest Harry O]

We can't answer this question if the only thing we know is when the employee signed the forms. We need to know (1) when the forms were provided to the employee and (2) when the payments would normally start (e.g., first day of month following employee's termination of employment).

The general rule is that the relevant QJSA explanation must be provided to the employee at least 30 and not more than 90 days before the ANNUITY STARTING DATE. This means payments can't start for at least 30 days after the notice was provided (but under certain circumstances the 30 day waiting period can be waived and benefits can start 7 days after the notice was provided). On the other hand, payment must start within 90 days after the notice was provided (the regs allow for a reasonable delay beyond 90 days if attributable to "administrative delay").

Bottom line is payment must start within 90 days following the date the elections forms were provided to him but a reasonable delay beyond this date is permitted for "administrative delay".

I assume the original question does not involve a retroactive annuity starting date (that is, the election forms and notices were provided BEFORE the annuity starting date).