Rollover options for non-spouse beneficiaries in pay status at DB plan termination

[Pension RC]

I am involved in a DB plan termination. A couple of participants are non-spouse beneficiaries who are receiving the remaining portion of a period certain annuity. If there choose to rollover the lump sum value of their annuity, would it need to be to an inherited IRA? Would they be able to roll it over to the company's 401k profit sharing plan?

Any help would be appreciated!

[david rigby]

I'll take a stab at this:

1. No.

2. No, unless the beneficiary is already a participant in the 401k plan (eg, an employee).

[QDROphile]

Does No #1 mean (a) they cannot roll over or (b) they can roll over but it need not be an inherited IRA?

[david rigby]

By (1), I mean there is no requirement that the receiving IRA be an inherited IRA (assuming I understand the question correctly).

[Kevin C]

From the model tax notice in Notice 2009-68:

If you are a surviving beneficiary other than a spouse. If you receive a payment from the Plan because of the participant's death and you are a designated beneficiary other than a surviving spouse, the only rollover option you have is to do a direct rollover to an inherited IRA. Payments from the inherited IRA will not be subject to the 10% additional income tax on early distributions. You will have to receive required minimum distributions from the inherited IRA.

The plan will also need to make sure the current year RMD is distributed. I looked into the RMD issue last year with a plan we terminated that allowed retirees to elect a lump sum and reached the conclusion that the remaining amount scheduled to be distributed during the year under the annuity form was the RMD portion of the lump sum.