Partial Withdrawal

[Zorro1k]

Can a DB plan allow for partial withdrawal as a distribution option?

[Effen]

No

Congress has been considering various concepts around phased retirement for years, but so far, nothing of substance has come from their considerations.

[Zorro1k]

That is what I thought. Have a plan that wants to add it as an optional form. I see partial withdrawal as an option in an IRS approved prototype plan. I can't locate am actual prohibition against it so if anyone could point me in that direction, I'd appreciate it.

[david rigby]

The plan may permit distribution if the employee is still working beyond NRA. Must be included in the plan document.

[Effen]

David - I agree, but I believe it must be a "full" distribution. I don't think they can elect to receive just 50% of their monthly annuity. I think Zorro was asking about "partial" distributions.

[david rigby]

Effen is correct. Sorry if I gave the impression that a partial distribution was permitted oost-NRA.

[Mike Preston]

Egads, if partial distributions were precluded then 436 itself would be a violation of the Code. If the doc allows, it can be done. 401a9 precludes partial distributions, but that is only mandatory for 5% owners at 70 and 1/2.

[My 2 cents]

Egads, if partial distributions were precluded then 436 itself would be a violation of the Code. If the doc allows, it can be done. 401a9 precludes partial distributions, but that is only mandatory for 5% owners at 70 and 1/2.

I had been presuming that the partial distribution contemplated was not mandated on account of Section 436. If the plan's AFTAP is between 60% and 80%, they cannot permit the participant to cash out the entire benefit. Certainly, if that situation applies, the plan can permit the participant to cash out half and defer the rest (or cash out half and take the other half as an annuity payable for at least the participant's lifetime).

[Zorro1k]

I am wondering about partial distribution as an optional form of distribution that a participant can elect. Not a distribution mandated on account of 436.

[Mike Preston]

Sigh. If you have a partial 436 restriction that doesn't magically create a partial lump sum option under the plan. I haven't looked at a 436 amendment recently but I don't recall it saying anything like: "Even if plan doesn't allow partial cash-outs because a full cash-out is restricted the plan now allows a partial cash-out." Am I wrong?

[Zorro1k]

I'm really wondering abut distributions in a funded plan not under any 436 restrictions. Assuming the plan does not offer a partial withdrawal option can it be amended to do so? If it can, what terms are allowable for the amount available for partial withdrawal? Can it be a lump sum equivalent against which a participant can make a withdrawal at any time in any amount?

[Mike Preston]

It is whatever the plan says.

[My 2 cents]

Sigh. If you have a partial 436 restriction that doesn't magically create a partial lump sum option under the plan. I haven't looked at a 436 amendment recently but I don't recall it saying anything like: "Even if plan doesn't allow partial cash-outs because a full cash-out is restricted the plan now allows a partial cash-out." Am I wrong?

If a plan allows lump sums but bumps into Section 436 restrictions, the plan's provisions concerning Section 436 restrictions can permit a participant to elect to receive the unrestricted portion of the lump sum and either defer the remaining amount or commence receipt of the remaining amount under any other option permitted under the plan that is not restricted under 436 (i.e., 50% paid as lump sum, 50% paid as a certain and life option). This is clearly permitted under the IRS regulations concerning handling of the restrictions under 436, but it must be supported by plan provisions. But the original post, as has been pointed out, is not asking about partial distributions when 436 applies.

[rcline46]

The old way - take lump sum, put into IRA, take partial payments from IRA. Keep It Simple Stupid.