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Offering Lump Sum on Plan Termination


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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.


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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.)

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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