Restricted Lump sum with employee contributions

[Dinosaur]

We have a DB plan that will be paying a restricted HCE the actuarial equivalent of the straight life annuity benefit. The plan is only about 90% funded so certain HCE's cannot receive full lump sum.

This plan has employee contributions from back in the day.

If the restricted employee is due, say, $15,000 in 2012. According to information I have read, he cannot roll over these payments to an IRA. Also, his employee contributions total $6,000.

He will have the option to take the rest of the lump sum (with option to roll over to an IRA) when the plan becomes 110% funded or the plan terminates.

When his Form 1099R is prepared is it as simple as this: total distribution = $15,000, taxable amount = $9,000 ($15,000 - $6,000). In 2013, the total amount of these payments would be taxable.

[SoCalActuary]

I do not believe you can recover the entire after-tax portion on the basis of "first out", but that you must administer the account on a proportional basis, with part of each annuity payment divided between taxable and tax-free.

[GMK]

Does the business apply here where you can take pre-1987 after-tax contributions without having to do the pro rata that you have to do for post-1986 contributions?

[Dinosaur]

I do not believe you can recover the entire after-tax portion on the basis of "first out", but that you must administer the account on a proportional basis, with part of each annuity payment divided between taxable and tax-free.

This is the case even though the participant elected a lump sum and must be paid as an annuity until the restriction is lifted?

[SoCalActuary]

I do not believe you can recover the entire after-tax portion on the basis of "first out", but that you must administer the account on a proportional basis, with part of each annuity payment divided between taxable and tax-free.

This is the case even though the participant elected a lump sum and must be paid as an annuity until the restriction is lifted?

Looks like an annuity until it isn't.