Restricted Plan Paid LS

[Penman2006]

DB plan is restricted from paying any lump sums for 2008. Administrator at TPA firm goes on vacation in October '08 and in his absence a lump sum payment of $2800 is mistakely made to a plan participant. The plan has a $1000 threshold for involuntary cashouts. They are trying to get the funds back from the participant but it seems unlikely. What happens now?

[david rigby]

Why is there a restriction?

[Andy the Actuary]

DB plan is restricted from paying any lump sums for 2008. Administrator at TPA firm goes on vacation in October '08 and in his absence a lump sum payment of $2800 is mistakely made to a plan participant. The plan has a $1000 threshold for involuntary cashouts. They are trying to get the funds back from the participant but it seems unlikely. What happens now?

Won't WERTA remove restriction from distributing deminimis lump sums? Since spousal consent is not an issue, has your problem gone away?

[Penman2006]

Yes, it looks like the WRERA $5,000 limit applies even if the plan document has a $1,000 involuntary cashout limit, and, I believe the WRERA provision is retroactive. But, if the plan has a $1,000 involuntary cashout limit is spousal consent required?

[Andy the Actuary]

Yes, it looks like the WRERA $5,000 limit applies even if the plan document has a $1,000 involuntary cashout limit, and, I believe the WRERA provision is retroactive. But, if the plan has a $1,000 involuntary cashout limit is spousal consent required?

Spousal consent is not required even though participant consent is required. See 417(e) and 401(a)(11). (A1lso, relative value disclosure is not required.) Despite the IRC, you should check the plan to confirm that it does not require spousal consent.