Schedule R, Line 3

[Lori Friedman]

A defined benefit plan has mandatory employee contributions. A plan participant terminates with 0% vested employer contributions. The plan makes a lump-sum distribution of the employee's own contributions, plus earnings.

Is this distribution reported on Schedule R, Line 3? Clearly, a lump-sum distribution has been made, but was a "benefit" distributed to a "participant"? For the purposes of Schedule R, a "participant" is someone who, at any time during the plan year, had an accrued benefit in the plan. Accrued benefits include both forfeitable and nonforfeitable amounts.

Would you report the lump-sum distribution? The Schedule R instructions specifically say not to report lump-sum distributions of elective deferrals, but there's no mention of mandatory, after-tax employee contributions.

[AndyH]

Hi Lori:

Yes, it is a lump sum distribution of an accrued benefit IMHO.

I think if you look at the plan document (at least each one of these that I have seen) the accrued benefit is comprised of both the employee-derived accrued benefit and the employer-derived accrued benefit. The latter is defined as the greater of the total less the ee derived. Either way it is still an accrued benefit.

This applies to an ERISA plan. A Non-ERISA plan might not have the same language but I would use the same logic for purposes of that question.