Restrictions and Annuity Start Date

[Andy the Actuary]

The 50% lump sum restriction had been in effect for a calendar year plan effective 4/1/2009. There were six participants who elected to take the 50% lump sum and start an immediate pension. The plan sponsor contributed additional amounts in 2010 for 2009 so that at least for the time being distribution restrictions no longer apply. The sponsor would like to offer those six the opportunity to take the remainder of their pension in a lump sum.

I know we have the "annuity start date" issue. I have also been party to plan terminations where annuitants were offered lump sums.

Any thoughts on whether or not offer to allow participants to revoke their election and elect lump sum payment is doable?

[FormsRstillmylife]

I have a form for that.

We have determined that the participant should be offered a lump sum. If married, we must offer QJSA & QOSA. The regulations say that if the plan provides or is amended to provide this opportunity after the restrictions are lifted, this is a new annuity starting date. New annuity starting date means spousal rights must be satisfied -- with respect to the spouse at the time of the original election, the spouse at the time of the current election, the spouse named as survivor annuitant on a joint and survivor distribution, and any spouse with a QDRO.

Note that if the document does not provide for this distribution, the amendment adding the distribution cannot cause a liability increase issue that throws the plan back under 80% AFTAP.

[Andy the Actuary]

Thank you, I dug this out from the final 430/436 regs (not easily found):

"With respect to a participant who was barred from receiving an optional form of benefit that would have been payable but for the application of a restriction on prohibited payments pursuant to section 436(d), once the restriction ceases to apply, the participant’s benefits will continue to be paid in the form previously elected unless the plan offers the participant a new election that modifies the prior election. The final regulations permit a plan to provide that the participant will be offered the opportunity to have a new election under which the form of benefit previously elected may be modified, subject to applicable qualification requirements, and clarify that any such new election will result in a new annuity starting date for purposes of section 417."