Distribution at early retirement

[ombskid]

Can a participant in a db plan take a partial distribution at the plan's early retirement age and continue to work and accrue a benefir?

[Effen]

I don't believe the law allows for partial distributions from a db plan, but it is something on a lot of professional organizations wish list. It would be helpful for phased retirement.

Probably the best you can do is have an in-service distribution at age 62.

[ombskid]

What about a sole proprietor one person plan who takes a year and a half to finish funding and distribute the balance but accrues no additional benefit

[david rigby]

Is there a distributable event, under the terms of the plan document?

[ombskid]

Plan allows early retirement at 60. At 61 he took the bulk of his lumpsum, but not all. Made one more contribution (no increase in accrued benefit) then took the balance.

[david rigby]

"...allows early retirement..." should also include a definition of "retirement".

Likely, merely attaining ER eligibility (as measured by age/service) is not the same thing as actually retiring. If the EE reached this eligibility but did not retire, that could lead to the conclusion that no distributable event has occurred.

[mbozek]

I thought under the age discrimination laws that apply to retirement plans a participant who is eligible to retire continues to accrue benefits even if distribution commences.

[Effen]

I thought under the age discrimination laws that apply to retirement plans a participant who is eligible to retire continues to accrue benefits even if distribution commences.

True dat. However, if your document calls for the greater of AE of AB or age/service benefit, the AE of the distributed benefit could easily exceed the value of the additional age/service benefit and therefore, the net effect is no new accrual. The plan must contain this "greater of" language, otherwise, they would interpret it to be "both" the rollup and the age/service benefit.

Either way, based on Ombskid's most recent post, it sounds like there were several problems. The "partial" distribution was not a permitted form of distribution, the "no accrual" may also be a problem depending upon the wording, and the lack of distributable event is most likely also be a problem. This sounds like a situation where he should amend the plan to make sure they allows for everything he did, then terminate the plan and tell him to cross his fingers and hope he doesn't get audited.

[david rigby]

..., and (if there are other participants in the plan), make sure any such amendment is not discriminatory.