In-service distributions

[LIBERTYKID]

Defined benefit plan desires to provide to part-time or full-time employees that agree to reduce their hours at least 80 percent with the opportunity to receive an in-service distribution of their accrued benefit, but not more than $1,000 a month. Code Section 401(a)(36) permits in-service distributions, so it appears to be legal, but what are some of the practical issues, concerns, about do so? Your thoughts are welcome.

[david rigby]

Did you notice the "age 62" requirement in 401(a)(36)?

[Effen]

One thing that is bothering me is the "not more than $1,000 a month". Assuming the AB is greater than $1,000, how does this impact the final benefit? When will the real retirement benefit commence? Are you getting spousal consents? How/when do you determine the ultimate benefit? Is this definitely determinable? How do you handle relative value disclosures? What if the participant dies while receiving the $1,000? What if the spouse dies - can the participant change their election before the real retirement benefit starts? What is the form of payment?

Just a few things bouncing in my head.

[Andy the Actuary]

Unlike Effen, my square head doesn't bounce. But, do benefits continue if employee becomes full-time? At the time participant makes election, would the election for when he actually retires be made as part of the option?