Elimination of Optional Form of Benefit

[Guest SFH]

I'm looking at Treas. Reg. section 1.411(d)-3©(ii), which provides a 180-day waiting period before you can eliminate an annuity as a redundant optional form of benefit. The preamble to the regs says the waiting period was inserted because the IRS was concerned about participants receiving notice of eligibility to elect a QJSA, and having the option eliminated before they could make an election.

Treas. Regs. section 1.411(d)-4(e) allows elimination of an annuity form of benefit if you give the participants a lump sum.

My question is, if you eliminate the annuity form of benefit by giving participants a lump sum form of benefit, do you still have to wait the 180 days?

The example following Treas. Regs. section 1.411(d)-4(e)(3) seems to suggest that you do, but the effective date is November 1, 2005 (60 days after the amendment date rather than 90 days). Does the example mean that the 180-day waiting period applies and the example has a typo in it, or was November 1, 2005 selected for some other reason (and presumably, the 180-day waiting period doesn't apply to elimination of a QJSA with a lump sum option).

Any thoughts?

[Logan401]

Prior to January 25, 2005, the regulations required that the amendment to eliminate a periodic payment option had to be delayed until notice to the amendment was provided to the participants, or at least a minimum period of time had passed after adoption of the amendmnet.

Specifically, the amendment could not be effective until the earlier of the following:

1) 90th day after the summary of amendment was furnished to the participants

2) 1st day of the 2nd plan year following the plan year in which the amendmnet is adopted.

After January 25, 2005, the amendment may be effective on or after the adoption date. An amendment which eliminates a periodic payment option under a DC plan may be applied immediately after the amendment is adopted, or any later effective date specified under the terms of that amendment. This can be found in IRC §411(d)(6)(E) as added by EGTRRA §645.

Of course, the amendment cannot be applied on a retroactive basis to those who have already commenced distribution. I also need to point out that disclosure to participants is still required. The disclosure is not required prior to the aqdoption of the amendment, and the deadline is 210 days after the close of the plan year in which the amendment is adopted. See DOL Reg. §2520.104b-3(a).

When we work on merging a plna over & the successor plan does not have the periodic payout provisions, but the merging plan does, we inform the participants of the elimination in the 30 day blackout notice.

Hope this answers your question..