Lump Sum versus Installments

[pixmax]

Does a lump sum distribution mean one complete distribution of the account balance? Participant is terminated and only wants to take part of his account balance. Can he do this if the plan only allows for lump sum distributions? If the Plan were to add installments as a form of distribution do they have to take so much money for so many years? We certainly don't want to offer the annuity option.

[WDIK]

For code purposes, see 402(e)(4)(D)(i)

(D) Lump-sum distribution

For purposes of this paragraph—

(i) In general The term “lump-sum distribution” means the distribution or payment within one taxable year of the recipient of the balance to the credit of an employee which becomes payable to the recipient—

However, you should refer to any pertinent language in the plan document that my address a "lump-sum" in the scenario you describe.

[Guest Sieve]

I agree with WDIK that this is, in the end, a plan document issue. And, if there is no further explanation in the document as to what constitutues a lump sum (which there probably isn't), then interpretation of the term would fall to the Administrator (probably the employer). And, if the employer wants the full account balance to be withdrawn upon termination of employment, then I think it may well be reasonable (depending on Plan language) to require a full distribution under those circumstances.

[masteff]

We certainly don't want to offer the annuity option.

So this is a DC plan (since a DB plan would have an annuity option already)?

You're missing the in-between option... partial distributions that can be taken as needed (of course some nice plan language about "if balance is less than $xxxx then must take entire balance" is nice to keep small balances out of the plan). We had one plan that had an "up to 1/2 of balance" option. Partials are legal to do but you're not mandated to allow it by the code/regs. And if you don't have it then you need an amendment.

[pixmax]

So it sounds like we should amend the Document to allow for partial withdrawals for terminated participants. Thanks for all the feedback.