Change Benefit Election

[Cloudy]

I have seen terminating plans allow participanis in pay status to change their benefit election and elect a lump sum cashout. Can a plan that is not terminating allow this? If so, is there any reason that lump sum would not be eiligible for rollover to an IRA?

[AndyH]

This is a legal question best answered by an attorney, but I am interested in the question so I will comment.

it may be helpful to note that the participant and spouse's QJSA waiver needed to occur at or near the annuity start date, which presumably happened in the past. So there needs to be a new event, such as a plan amendment offering a lump sum that was not previously offered for that opportunity to be re-opened, I believe. Maybe a plan termination would be such an event, but a plan termination without a change in benefit options or similar triggering event is a matter upon which attorneys that I know disagree.

I don't see any issue with the rollover if a lump sum is available and elected.

I'd be interested in the comments or experiences of others on the retiree lump sum issue.

[david rigby]

Earlier discussions:

http://benefitslink.com/boards/index.php?/topic/47087-offering-lump-sums-to-participants-already-in-pay-status/

Retirees don't like change.

[Andy the Actuary]

Only comment is that if participants had the right to elect lump sum at time pension started but opted for monthly pension, don't make the offer. Otherwise, you get into a trick bag of those who would like to change their monthly payout option to a different monthly payout option. Hey, if they wanted a lump sum, they had the opportunity.

[My 2 cents]

If one wishes to allow retirees to cash out, one must be willing to deal with the likely anti-selection in order to obtain whatever benefits may be had from such a derisking strategy. If one excluded people who had spurned a lump sum earlier, wouldn't that pretty much foreclose any such action if the plan offers a lump sum option (since it would presumably have been declined by all retirees)?

I continue to be somewhat leery of such offers (in my comments in the other thread, I expressed concern as to how effectively the pros and cons of taking the plan up on such an offer can be communicated to older retirees), but at this time, it would be cheaper to cash the benefits out than purchase annuities if the plan is to be terminated in the near future.

There are also potential issues if the current spouse is not the same person as the former spouse standing to receive death benefits under a QJSA (possibly even under a QDRO). Probably need to get consent from both (from all of them if the original retirement benefit was split by a QDRO, with the alternate payee as joint annuitant for part and the (now ex) second spouse as joint annuitant for the rest of the original retirement benefit)!