"Substantially equal" monthly installments

[Belgarath]

Curious as to how this is handled in most plans - specifically, tax exempt plans with no Rabbi trust. Some plans allow participants to direct "their' account (although of course it is employer money) and others don't. 

When it comes time for the participant to elect a distribution, and they choose "substantially equal" monthly installments, do the plans you see:

A. Take the account balance at the time of distribution, divide by the number of months, and pay a fixed payment - interest or losses on the funds absorbed by the employer.

B. Still allow the participant to have investment control, and the "substantially equal" payments can fluctuate with the underlying market value?

C. Other?

I've only seen "A" but I don't see many 457 plans.

[EBECatty]

I have seen "B" and a variation of "A," both in tax-exempt 457(b) and nonqualified plans. 

Some employers will allow the employee to direct investments until they reach pay status. Then they take a snapshot of the balance and pay out that amount over, say, 120 monthly installments. The employer will no longer keep the money invested, or maybe keep it invested in a money-market fund, so it's no longer at risk. Or maybe the employer will pass along the interest to the employee (i.e., the account balance while in pay status is "directed" into the money-market fund or accrues interest at prime). 

Others will let the participant continue directing their investments while in pay status. In that case, the installment formula we use is: (total account balance immediately before installment payment) / (remaining number of installment payments). That way the payments fluctuate with the account balance. I've never heard any concern that the formula is no longer "substantially equal" just because it can vary with investment experience.