DB Plan 70 1/2 Distribution

[David]

I have an active HCE over 70 1/2 with a 20% vested accrued benefit. The plan started 2 yrs ago and NRA is 5 YOP. The normal form is a life annuity. The plan has j&s and lump sum options. Is it possible to pay out this years 70 1/2 dist based on the "account balance" method? If not, does using a j&s ben lock him into taking his nrb in the j&s form? Does a life annuity 70 1/2 dist require spousal consent? Thanks.

[KJohnson]

I believe that unless the participant affirmatively elects an optional form of distribution allowed under the Plan, required minimum distributions must be in the form of a QJSA.

I also posed this question on the Distribution Q&A Board on benefitslink. Look at the follow up answer to Retirement Plan Distributions Q&A 122.

Also although the participant is 70 1/2 he is not NRA. Therefore benefits are still immediately distributable and consent to any distribution would ordinarily be required. Prop. Reg 1.401(a)(9)-1 Q&A H-3 specifically contemplates this situation and says that you can make a such a required minimum distribution without consent if you have made efforts to obtain consent. However, I believe that any non-consensual distribution must still be in the form of a QJSA because of the 417 regs.

Another hitch is that if the employee is active and not a 5% owner, this really is not a "required distribution" from a 401(a)(9) perspective and I am not sure whether you could take advantage of Q&A H-3 and distribute without consent.

Also, if the employee is not a 5% owner, does the Plan allow the employee to defer taking a distribution until actual retirement?

[This message has been edited by KJohnson (edited 11-29-1999).]

[David]

Thank you for your helpful response. He is a 5% owner. So, if he obtains spousal consent and elcts a lump sum, he is making his election for distribution when he attains NRA (not just for this years MRD)? I wonder, if he takes the MRD in the form of a QJSA, does a lump sum option still exist at NRD?

[KJohnson]

The regs provide that once a distribution begins in the form of an annuity, the period for taking distributions cannot be lengthened. However, you would appear to be shortening the period with a lump sum. The regs also provide that, with certain exceptions, the amount of the annuity cannot be increased. However, your lump sum would not be an "annuity payment" but would be another optional form of benefit under the Plan. Logically it would seem that such a distribution would be o.k. but I've never seen anything on this.

You probably have more of a plan document issue. Does the Plan allow a participant to "change" the form of distribution once payments have begun in the form of a QJSA. I

think allowing a change from a QJSA raises other questions (i.e. QJSA has to be actuarial equivalent to the most valuable form of benefit, QPSA has to be at least as valuable as QJSA etc.)