Offering Lump Sum on Plan Termination

[WestCoast]

A defined benefit plan sponsor will soon terminate the plan in a standard termination. Currently, the plan does not offer lump sum, other than small benefit cash-out lump sums. The sponsor would like to amend the plan at termination to allow vested terminated participants a limited time "window" opportunity to elect a lump sum distribution. So far, so good.

The issue is whether, in offering the lump sum election, must the vested terms also be allowed to elect a QJSA?

Treas. Reg. section 1.417(e)-1(b)(1) sure seems to require this result -- "A distribution cannot be made at any time in a form other than a QJSA unless such QJSA has been waived by the participant and such waiver has been consented to by the spouse" and "[T]he plan must also offer a QJSA . . . ."

It's certainly the case for an ongoing plan that is amended to offer a permanent or, in my view, a limited time window, lump sum election option.

Thanks.

[david rigby]

Likely, the plan has more to say than that.

1. check to see if the plan's termination provisions already permit a lump sum distribution. If not, YES it can be amended to add it. Don't use the term "window".

2. any participant offered a LS over $5000 must also recieve an option to recieve the benefit as an annuity, with the usual J&S requirements for married particiaptns. (It's possible that the plan imposes such restrictions on benefits less than $5000, but not very common, so read carefully.)