Lump Sum Distribution after Annuity Starting Date

[richard]

The sole employee retires after NRD, and starts taking a life annuity. 2 years later, the plan terminates, and he would like to have the remaining value of his annuity paid to him as a lump sum and transferred to an IRA.

Can this be done?

(The plan can be amended accordingly on plan termination if needed.)

[david rigby]

It seems that such a plan amendment is possible. should not be discriminatory, but if there is only one EE, that problem should vanish.

As a friend once told me, "If you can hold your Board of Directors meeting in your bathtub, you don't have a problem."

[mwyatt]

Actually PAX, I think the key point of concern here is whether the subsequent lump sum distribution is eligible for rollover. I remember this issue being discussed in a previous thread but can't recall the outcome. I do recall reading of a case in the early 90's where a participant had commenced distributions from a profit sharing plan over their lifetime. At plan termination he subsequently rolled over the balance to an IRA. The IRS disallowed the rollover stating that since equal payments had already started, that future rollover treatment was disallowed and the lump sum was subject to ordinary income tax treatment. However, I believe that subsequent legislation attached to UCA '92 may have made this argument moot. A good question posed by Richard: is the subsequent lump sum distribution eligible for rollover? Obviously this is of critical importance to the client. Any cites would be helpful.

[AndyH]

Just a head's up. I don't have a complete explanation right now, but I have been told that there is a problem with this.

Apparently there is an issue with respect to the QJSA rules which (it is argued) prevents someone who previously was offered a lump sum, declined and selected an annuity form, from subsequently changing that election to a lump sum after payments have started. I think it has to do with the QJSA waiver period.

Richard, this seems like an odd situation. First, it is a DB, correct?. Second, was there an annuity election made (versus installments or minimum distributions)

I'll see if I can get a more complete explanation for the interpretation summarized above.

[richard]

Actually, my key concern is in fact preserving the ability to do an IRA rollover when the plan is subsequently terminated.

Additional background -- it is a DB plan. The employee is married. The benefit election has not been made yet. The plan doesn't provide for installment payments (but we can have an amendment signed in the bathtub to allow installment payments if this preserves the future rollover). The reason for delayed plan termination is related to potential bankruptcy issues for the next several years.