qualified plan distributed annuity

[Scuba 401]

after a qualified plan distributed annuity is paid out to the participant if the participant wants to surrender the annuity and roll over the proceeds to a personal IRA can he do so without regard to GATT and 415? i would say yes but i need verification.

[ForksnKnives]

The first thing I would look at is whether the plan even permits the participant to change payment options after benefits commenced. I've never seen a pension plan that even permitted that change. Not saying no plan does it, I've just never seen it. For the participant's sake I would be interested to know whether the plan's potential mechanism to revert the annuity payments to a lump sum would create a qualified distribution out of an income stream no longer permitted to be rolled over.

[SheilaD]

I have one plan that allows a post distribution change in form. The lower paid participants keep selecting annuities of $ 10, $ 20, $25 per month and then discover they would prefer a lump sum after a few months of tiny checks. The employer likes when they switch to a lump sum because the cost of processing those checks outweighs the higher lump sum payout.

However, in our case we don't purchase annuities - so we are taking into account GATT and 415. I would hope that the plan sponsor would purchase an annuity that would follow the terms of the plan (whether change is allowed or not).

[Scuba 401]

The normal form of benefit is an annuity. Plans are permitted to buy annuities and distribute them particularly coincident with plan termination. Then the participant owns the annuity and can cash out and rollover if they so desire. That's why I am asking if 415 applies

[ScottR]

I doubt this would be permissible if the value of the annuity exceeded the 415 lump sum limit. Otherwise, there would be widespread distribution of 100% J&S annuity contracts with max monthly benefits, no?

It seems to me that the distribution of an annuity contract would be akin to an "in kind" distribution of investment securities. We would test their value at the time of transfer against 415 limits.

Can't point to anything specific, but it doesn't pass the smell test for me.

.. Scott

[QLAC Annuity]

I think a distribution from a QDPA, provided the distribution is an eligible rollover distribution (e.g., a cash surrender amount) can be rolled into an IRA regardless of 415. See Treas. Reg. Section 1.402©-2 Q&A-10(b).