Require Rollover of Lump Sum?

[Guest ebailey]

Can we add an option form of benefit to a DB plan which would be a lump sum distribution ONLY if you agree to rollover as elgible rollover distribution? We want to prevent people from losing their retirement (spending it etc) - but want them to be able to pick another plan if they want to upon termination etc. Any thoughts? I can't find anything that prevents this (or allows it). I don't see it violating the nondiscrimination rules but may be missing something... any thoughts?

[Andy the Actuary]

The initial thought is that even if what is proposed is allowable, you cannot assure you accomplish the objective. That is, you can't prevent the IRA from being cashed out prematurely.

[Guest ebailey]

True - good point - but it would make the client feel like they were doing the right thing.... They really want to condition any type of lump sum distribution.

[GMK]

Here's a related discussion on the 401(k) board, including about 'doing the right thing.'

http://benefitslink.com/boards/index.php?showtopic=44070

[Guest ebailey]

thanks - right on point - not encouraging... may have to go with allowing elective transfers...

[SoCalActuary]

Can we add an option form of benefit to a DB plan which would be a lump sum distribution ONLY if you agree to rollover as elgible rollover distribution? We want to prevent people from losing their retirement (spending it etc) - but want them to be able to pick another plan if they want to upon termination etc. Any thoughts? I can't find anything that prevents this (or allows it). I don't see it violating the nondiscrimination rules but may be missing something... any thoughts?

I'm not a fan of your idea. It insults the intelligence and individual needs of your participants.

[Guest Sieve]

My knee-jerk reaction was that this particular rollover-only distribution is not permitted--and that's where my gut still is. But, let me play devil's advocate for a minute . . .

Since a distribution is not required to be made under a plan until NRA, why couldn't a DB plan which contains such a delayed distribution provision from its establishment also provide that earlier distributions will be permitted as a lump-sum rollover only (obviously only if the spouse agrees, and comparable to the suggestion by a poster in the string provided by GMK)? Or, is this something that could have been permitted before the mandatory rollover rules were instituted, but no more?

[tuni88]

Can we add an option form of benefit to a DB plan which would be a lump sum distribution ONLY if you agree to rollover as elgible rollover distribution? We want to prevent people from losing their retirement (spending it etc) - but want them to be able to pick another plan if they want to upon termination etc. Any thoughts? I can't find anything that prevents this (or allows it). I don't see it violating the nondiscrimination rules but may be missing something... any thoughts?

You have 60 days to do a rollover, right? How you gonna police it?

Preventing people from losing their retirement is exactly what a DB plan does, no? So why add a lump sum feature?

[Effen]

Preventing people from losing their retirement is exactly what a DB plan does, no?

EXACTLY!

If they want the lump sum option, why not make it so it is only available at NRD/ERD? That way they can't blow their money until they are old enough to make their own decisions.