S-Corp ESOP - Change Distribution Form - Protected Benefit

[Guest ERISAk]

In an S-corporation ESOP where distributions are only in cash, plan sponsor wants to change distribution method. Currently, plan provides for annual installments (with minimum payment of $2,500) and lump sum distribution of amounts of $5,000 or less. Plan sponsor wants to change distribution method this year (for participants that terminated this year but who will not get a distribution until next year) -- the new method will be 5 equal annual installments (but no minimum amount requirement so distributed equally over 5 years) and lump sum distributions for amounts of $2,000 or less.

Will Reg. 1.411(d)-4 Q&A-2(d)(1) (see below) permit this change to be made this year or must the change be prospective only?

(i) Single sum or installment optional forms of benefit. The employer eliminates, or retains the discretion to eliminate, with respect to all participants, a single sum optional form or installment optional form with respect to benefits that are subject to section 409(h)(1)(B), provided such elimination or retention of discretion is consistent with the distribution and payment requirements otherwise applicable to such plans (e.g., those required by section 409).

[ESOP Guy]

My guess you are not getting any replies because the answer is unclear. I am unaware of any guidence on this topic. You have asked the perfect grey area question. My guess is the plan adminstrator and their attorney is going to have to decide how comfortable they are defending this kind of change or not.