Protected Benefits

[Lauren0507]

A defined contribution plan currently provides that death benefits must be paid out over 5 years generally, but allows for extended payments to a participant's spouse.  The client wants to remove extended payments and apply the 5 year rule to all beneficiaries, including the spouse.  The plan does not allow annuity distributions.  Are the extended payments protected or may they be eliminated as an optional form of benefit?

[Mike Preston]

Death benefits, as a rule, are not protected.  Optional forms, as a rule, are protected.  However, the rules regarding protection of optional forms allow elimination of an optional form if the remaining optional forms provide for essentially the same optional form with all of the benefits paid out over a shorter period of time.  So, while I'd check the reg to be sure, my guess is that the client can accomplish what they want.

 

[Luke Bailey]

Lauren057, it's been a while since I had to look hard at this issue, but I think you're under 1.411(d)-4, Q&A-2(e), in which case you can do what you want, but only if you offer the surviving spouse a lump sum on the first date that he or she could otherwise receive the first of the "extended payments." Check out the reg.

[Lauren0507]

Thanks so much for the responses.  Happy New Year!