Retirement and a Plan Document

[Guest jmrivelli]

Hello to All!

I have a retirement plan with a former company. When I left the company the dollar value was less then $20k. I wanted to take a lump sum distribution, however, the fund was frozen. This year I recived notice the fund was no longer frozen, however, in the ensuing time, the dollar value has increased to a little more then $21k. The plan administratior says they cannot honor my request for lump sum payment as they will get in trouble with the IRS. Is there anything I could do, or any exception I could request?

The Plan Document for this states there is a $20k limit for lump sum distirbution. I have sent two previous requests to the plan administrator for a lump sum distribution. Since this seems to be a plan or company policy and not IRS,what can I say, or ask, of him to persuade a lump sum payment?

Thanks in advance!

[david rigby]

Normally, plan provisisons rule, assuming they conform to any limitations required by federal law.

From your statement, it appears the applicable plan provision is the plan-imposed limit of paying "small" benefits only if less than $20K. That type of provision might be unusual for a 401(k) or profit-sharing type of plan, but it is permitted. Assuming I understand your facts (which is not necessarily a good assumption), you can ask that the plan be amended to permit your distribution.

BTW, what do you mean "frozen"?

[Lou S.]

I'm guessing it was probably a DB plan that had a funded percentage under 80% or 60% that had a full or pratial freeze on lump sum distrtibutions due to funded status.

[mbozek]

Hello to All!

I have a retirement plan with a former company. When I left the company the dollar value was less then $20k. I wanted to take a lump sum distribution, however, the fund was frozen. This year I recived notice the fund was no longer frozen, however, in the ensuing time, the dollar value has increased to a little more then $21k. The plan administratior says they cannot honor my request for lump sum payment as they will get in trouble with the IRS. Is there anything I could do, or any exception I could request?

The Plan Document for this states there is a $20k limit for lump sum distirbution. I have sent two previous requests to the plan administrator for a lump sum distribution. Since this seems to be a plan or company policy and not IRS,what can I say, or ask, of him to persuade a lump sum payment?

Thanks in advance!

Take the 20k max out of the plan which will leave 1k. Sooner or later the plan will send you the balance because of the costs of maintaining your account in the plan. If this is a DB plan the plan will send you a lump sum for 1k because of the deminimus amount of the annuity you would receive.

[david rigby]

Does the plan permit a partial distribution?

[My 2 cents]

Does the plan's limit apply to how much you can withdraw or from which accounts withdrawals can be made? If this is a defined benefit plan (why else would there have been temporary restrictions on lump sums?), it is probably pretty explicit as to what is permitted. The communication from the administrator makes it sould as though your benefit, being worth more than $20K, cannot be cashed out.

If the plan was subject to restrictions on distributions because of funded status, it would not seem that there is anything that can be done, since at all times (presumably) the terms of the plan were being followed. They didn't pay the lump sum when you were just below $20K because they were not permitted at that time to pay lump sums, and they can't pay you now because your benefit is worth more than $20K.

Did you receive written denials of your benefit applications? They were required to provide them to you, explaining why your requests were being denied.

Unless permitted by the plan, taking most of it now and being subsequently cashed out later for the rest is probably not an option. Perhaps you can persuade them to amend the plan to raise the cashout limit to $25K or eliminate it entirely.

[Guest jmrivelli]

Does the plan's limit apply to how much you can withdraw or from which accounts withdrawals can be made? If this is a defined benefit plan (why else would there have been temporary restrictions on lump sums?), it is probably pretty explicit as to what is permitted. The communication from the administrator makes it sould as though your benefit, being worth more than $20K, cannot be cashed out.

If the plan was subject to restrictions on distributions because of funded status, it would not seem that there is anything that can be done, since at all times (presumably) the terms of the plan were being followed. They didn't pay the lump sum when you were just below $20K because they were not permitted at that time to pay lump sums, and they can't pay you now because your benefit is worth more than $20K.

Did you receive written denials of your benefit applications? They were required to provide them to you, explaining why your requests were being denied.

Unless permitted by the plan, taking most of it now and being subsequently cashed out later for the rest is probably not an option. Perhaps you can persuade them to amend the plan to raise the cashout limit to $25K or eliminate it entirely.

Yes, the plan administrator sent me a letter pretty much saying what you have said. I was just trying to find a way around it. The plan document states there are no lump sum payments if the amount is over $20K. When I said the account was "frozen" I meant they would not allow any withdrawals whatsoever. This was in effect when I first left the company. By the time this had been lifted, the amount in my account had exceeded the $20k threshold for lump sum payments.

I am not aware of any provision in tne plan allowing for a partial withdrawal.