Acceleration--Limited Cashouts

[Randy Watson]

An exception to the anti-acceleration rule exists for "limited cashouts". My question is whether this permitted acceleration applies only to the form of payment (i.e., paying a lump sum when the plan provides for installments) or can it also apply to the timing. For example, if a plan states that distribution will be made exactly 1 year from the date of termination could we use this Section of the Regulations to pay a lump sum within 90 days of termination (assuming it is less than the 402(g) limit and otherwise meets the exception)? Would it make a difference if the normal form of payment is a lump sum 1 year from termination and we pay out the lump sum within 90 days of termination?

[XTitan]

Which section of the regs are you looking at?

The limited cashout provision [§1.409A-3(j)(4)(v)] provides the company discretion to cash out all aggregated plans for any individual, provided the amount is below the 402(g) limit (and the plans are all amended to provide this discretion). The company would be able to cash the participant out at any time, regardless of whether there was a triggering event.

The section where the tail of the distribution can be lumped out if the pv is below a predetermined amount [§1.409A-2(b)(2)(iii)] isn't tied to 402(g) limits. However, if you argue that the predetermined amount can be the 402(g) limit, you value the pv of the remaining benefits as of the date of termination and find it below the predetermined amount, then mandating payment within 90 days sounds reasonable. See Notice 2007-78 for more guidance on predetermined cashouts.