In-service Distributions/Distributable Event in PS Plans

[Guest jvgatty]

Hi all. I have a Profit Sharing only plan where the client is now requesting that I amend the plan to provide for in-service/early distributions. The whole concept here is to get the money out and immediately roll it to an IRA which has an insurance product (possibly?) in it which provides for some sort of protective rider to protect against downside loss. Obviously the Insurance Agent is really the one who brought up this idea and is pushing it.

The HCEs in this plan are not 59 yet. However when I raised the issue of having problems just allowing distributions for apparently no reason, the Ins. Agent consulted another advisor whose position is that distributable events only apply to 401(k)s.

So the question here is - can you have distribution prior to age 59 1/2 for no reason from a profit sharing plan which are eligible rollover distributions?

I am just kind of lost on this because it seems odd to just be able to effect a distribution whenever you want one.

Help!

Thanks in advance for shedding any and all light.

[Guest Sieve]

The answer is Yes. Distributions from a PSP can be permitted (as per the plan document) on the occurence of an event or the attainment of a stated age. It's basic to the definition of a PSP, as opposed to a PP. (Treas Reg. Section 1.401-1(b)(1)(ii).)

[Guest jvgatty]

I believe the position is that discussion of distributable event occurs in Section 401(k)(2) and that nowhere else in the 400's are there limitations on when distributions can occur. This seems so odd to me. But maybe I have just missed something over time. Thoughts?

[Guest Sieve]

It's not odd. For those of us around prior to 401(k) plans, the general rules were clear. (See my earlier post for reference.) Those general rules have not changed. Distributions from 401(k) elective deferrals are an exception to the general rules.

[Guest Matthew Gouaux]

Also worth noting is that if in-service distributions will not be available universally, the amendment will need to satisfy Treas. Reg. Section 1.401(a)(4)-4 (nondiscriminatory availability of benefits rights and features).

[Guest jvgatty]

Larry, thanks. I am not sure why I couldn't find that on my own, but I am much more comfortable with it now.

[Guest Brian Theismann]

The answer is Yes. Distributions from a PSP can be permitted (as per the plan document) on the occurence of an event or the attainment of a stated age. It's basic to the definition of a PSP, as opposed to a PP. (Treas Reg. Section 1.401-1(b)(1)(ii).)

Slight correction- distribution can also be permitted after a fixed number of years.

But I think that those bases for allowing a distribution are not exactly equivalent to allowing a distribution "whenever you want one." If the plan allows distributions for reasons other than fixed number of years, age, or occurrence of an event, I think the IRS might determine the trust to be non-exempt. Of course, the age can simply be set to below the ages of all of the employees.

[Guest Sieve]

Agreed.