Restricted Distribution

[Guest BDZ]

We have a restricted employee who previously elected to receive a single sum distribution, subject to the maximum annual installments. He has been receiving payments for the last few years in the beginning of the plan (calendar) year. For some unknown reason, the insurance company making payments failed to make the annual installment during 2006 and the participant never brought it up to the plan sponsor. Since the regulations state that “in any year, the payment of benefits … to a restricted employee shall not exceed an amount equal to the payments that would be made … under a straight life annuity…” I am concerned that the IRS could question the potential payment in 2007 if they correct the omitted 2006 payment. On a related (but less significant matter), I don’t believe that any interest could be applied to the missed prior year’s payment as the amount would exceed the straight life annuity amount.

Is anyone aware of any guidance or precedent for the IRS allowing the correction to be made with the participant receiving two payments during 2007? Or any justification for crediting interest? Thank you very much!