Do 401(a)(4)-5 restrictions apply?

[dmb]

1.401(a)(4)-5 provides that benefits otherwise payable to restricted employees (generally the 25 HCEs with the highest compensation)under a defined benefit plan are limited if the plan is not at least 110% funded after the distribution.  If the value of the benefit is less than 1% of the plan's current liabilities, the restrictions do not apply.

Is the 1% exemption only applicable at benefit commencement date or (like the "110% Test") is the 1% exemption applied at every payment date and the full amount can be paid once the value falls below 1%.

[CuseFan]

I believe the lump sum is no longer restricted once value drops below 1% of current liability.  Person elects the lump sum, but then it gets paid in life annuity amount installments until no longer restricted, correct? Do not elect annuity because you cannot then offer a lump sum prior to plan termination.

This presentation shows a similar question, but no answer, but does state that an escrow account can be dissolved once the benefit falls below 1% CL - so what's the difference? 

 http://asppa-net.org/Portals/2/PDFs/Conferences/LAPC/Workshop 1.pdf

[My 2 cents]

My vote is that the unpaid balance falls out of restriction if either the plan gets to 110% before all the installments have been made or if the unpaid balance falls below 1% of the plan's total, and the balance can then be paid out.

Incidentally, I just want to make sure that it is well understood that just because the installments are equal to a year's worth of life annuity payments, there is no potential forfeiture due to death.  The account belongs entirely to the restricted participant and does not return to the plan if death intervenes.  The only thing that can take it away is the sponsor failing, resulting in a claw-back situation arising.

[dmb]

Understood.  And thanks.