Change of payment method

[Guest Sabadee!]

DB Plan... Is there a regulation that prohibits a plan from allowing a participant in pay status from changing their election after it has begun? Specifically, could the plan offer the option to annuitants to "cash out" after they had already started receiving annuity payments?

[david rigby]

Don't know if any reg addresses this, but check regs under IRC 401(a)(9). There has probably been a prior discussion on these Message Boards, so try the Search feature.

More generally, most plans will state (sometimes indirectly) that a payment form cannot change once it has begun. I've seen some plans amended to add this feature, but it is extremely(!) rare, and must be done on a non-discriminatory basis. Note that the use of such feature is voluntary by the participant, not decided by the plan administrator. Spouse signoff is also advised.

[Guest Sabadee!]

Thank you for the response. I searched through the regs and couldn't find anything prohibiting it, but for the few that might cash-out it seems like a lot of hassle. The client's intial hope was to apply this to those whose future values were less than $5,000 without consent. I agree that the consent would be needed.