Restricted Distribution Eligible For Rollover?

[Andy the Actuary]

A Plan must limit distributions to HCEs. An CHE elects lump sum payment and will receive annual until restricts are lifted an annual payment. The plan does not provide for escrow or other arrangements to facilitate lump sum payment.

(1) Does this annual payment constitute an eligible rollover distribution? While it may be based on a lifetime spread, it nonetheless constitutes a temporary series of annual payments of indeterminable length.

(2) If it is not believed this distribution constitutes an eligible rollover distribution, is it still necessary to provide "Your Rollover Options" with the participant's election package?

Note, the participant would be electing lump sum payment, which is not covered under this wonderful piece of paper. It is also of interest that the disclosure provides that "The Plan administrator or payor can tell you what portion of the payment is eligible for rollover." Don't bet on that!!!!

(I resent the requirement to make this statement as it suggests the PA will offer tax advice. If a participant presses, would it be incumbent upon the PA to obtain a tax opinion?)

[SoCalActuary]

In my research, this is a periodic annuity payment, not subject to 20% withholding and not eligible for rollover.

If the participant wants a rollover, then they must wait to request their lump sum until the plan is adequately funded.

Sorry, not a nice answer, but it is consistent with the intent that the restricted HCE only gets an annuity.

[david rigby]

I don't have any specific cites, but SoCal's summary is consistent with my previous review of this topic.

[Andy the Actuary]

I thank you both for your responses. Let's explore the "intent of life annuity issue"

1.401(a)(4)-5(b)(3)(i) provides that payments not exceed a an amount equalt to payments that would be made under a straight life annuity blah blah blah. The intent is simply to limit payments to a benchmark until the restriction is removed. The Plan provision could provide a distribution of 1/15 of the lump sum, which certainly would have been less than the life annuity.

That said, I'm only parsing words and not the outcome of your research.

Based upon your findings, we would not need to distribute "Your Rollover Options" until such time as the balance can be distributed in a lump sum.

[Kevin C]

While the restrictions are in place, wouldn't the annual payments be considered part of a series of substantially equal periodic payments ... under 1.402©-2, Q&A 5? It looks like under © that a new determination is needed if the payments change when the restrictions no longer apply.

[Andy the Actuary]

While the restrictions are in place, wouldn't the annual payments be considered part of a series of substantially equal periodic payments ... under 1.402©-2, Q&A 5? It looks like under © that a new determination is needed if the payments change when the restrictions no longer apply.

agree -- the omitted words are "without regard to contingencies or modifcations that have not occurred."