Cut Back?

[austin3515]

Plan allows in-service distriubtions in the form of installments, following age 59 1/2. I know the timing of an in-service distriubtion is a protected benefit - is the installment form of payment protected? I don't think so, but thought I would check.

[Kevin C]

If an otherwise identical lump sum is available, you can eliminate the installments.

1.411(d)-4, Q&A 2 (e) Permitted plan amendments affecting alternative forms of payment under defined contribution plans—(1) General rule. A defined contribution plan does not violate the requirements of section 411(d)(6) merely because the plan is amended to eliminate or restrict the ability of a participant to receive payment of accrued benefits under a particular optional form of benefit for distributions with annuity starting dates after the date the amendment is adopted if, after the plan amendment is effective with respect to the participant, the alternative forms of payment available to the participant include payment in a single-sum distribution form that is otherwise identical to the optional form of benefit that is being eliminated or restricted.

[12AX7]

Can this perhaps be interpreted to mean that the plan would need to offer "partial lump sums" that would be at least equal to the installment amount in effect, or would just a lump sum (entire balance) cover the replaced provision?

[Kevin C]

The next paragraph of the regs defines otherwise identical single-sum distribution. The term covers more than just timing and eligibility conditions to receive the form of payment. An entire balance lump sum distribution option will work as long as it satisfies the rules. A partial lump sum provision looks like it would work, too, as long as they have the choice to receive the entire balance if they want it. The reg says that the otherwise identical distribution form is a single-sum distribution.

(2) Otherwise identical single-sum distribution. For purposes of this paragraph (e), a single-sum distribution form is otherwise identical to an optional form of benefit that is eliminated or restricted pursuant to paragraph (e)(1) of this Q&A-2 only if the single-sum distribution form is identical in all respects to the eliminated or restricted optional form of benefit (or would be identical except that it provides greater rights to the participant) except with respect to the timing of payments after commencement. For example, a single-sum distribution form is not otherwise identical to a specified installment form of benefit if the single-sum distribution form is not available for distribution on the date on which the installment form would have been available for commencement, is not available in the same medium of distribution as the installment form, or imposes any condition of eligibility that did not apply to the installment form. However, an otherwise identical distribution form need not retain rights or features of the optional form of benefit that is eliminated or restricted to the extent that those rights or features would not be protected from elimination or restriction under section 411(d)(6) or this section.

[12AX7]

That answers the question. Thanks!