"Repayment Agreement," "Nonrestricted limit," &quo

[Guest wworden]

I resigned last March from a company with a defined benefit plan. The plan includes provision for a single sum distribution. I looked into rolling it into an IRA but have been advised by the company I need to sign a Repayment Agreement under the provisions of Treasury Regulation 1.401(a)(4)-5(B) which places restrictions and limitations on the amount that can be distributed as a single sum distribution. I am told that the present value of the benefit, payable as a single sum distribution, exceeds the maximum amount (the "Nonrestricted Limit") that can be paid to me by the "Restricted Amount."

Getting information from the administrator is a little difficult and so I am turning to this message board with the following questions:

1. Can somebody tell me where to find a copy of Treasury Regulation 1.401(a)(4)-5(B)?

2. Can I still roll the "nonrestricted limit" to an IRA and leave the "restricted amount" with the Plan?

3. If I leave the "restricted amount," can I still draw a retirement benefit based on that amount? (I will be 55 next February and eligible to draw a benefit if I leave ALL the money in the Plan.)

4. This last question is rhetorical: How in the world did this all get so incredibly complicated and convoluted?

My thanks in advance to anybody who can help.

[Guest Mr. X]

You are obviously a highly compensated employee in an "underfunded" DB plan. This regulation is designed to protect lower paid employees from not having enough plan assets available to pay out their benefits. Addressing your questions as follows:

1. I could email it to you if you leave your email address.

2. Yes.

3. I am assuming you would be drawing a life annuity (you would be restricted from drawing more). If that's the case, you certainly are able to refuse to receive a distribution at this point since your present value of accrued benefits is greater than $5,000.

Another point of interest, if the plan meets the criteria of being "funded" as illustrated in the regulation you list, you would be able to receive your full distribution at that time.

[david rigby]

Let's not forget the last question.

4. Congress. Your tax dollars at work.

[Guest wworden]

Dear Mr. X and Pax:

Thanks to you both for your replies.

Mr. X: You're right. I am told I am among the "top 25" at the company. My email is wworden@hotmail.com. I would appreciate hearing from you.

Pax: You're also right: Congress and tax dollars at work. I think, however, the executive has exceeded its authority in many cases and proceeds to issue "regulations" beyond the intent of Congress while Congress, meanwhie, does nothing to rein them in.

Regards,

Waite W. Worden Jr.

[AndyH]

Are we sure about #2?

First, the terms of the plan must allow payment of "installments", it seems to me. Most do not.

Second, the installments, which I think are close to life annuity amounts, must qualify for rollover treatment.

Isn't that the whole problem, that the max withdrawal is limited to (close to) life annuity amounts?

It seems to me that these withdrawals would certainly extend beyond 10 years.

I may be wrong, and if so, I welcome correction, but my last reading of this stuff said installments payable over a period of more than 10 years do not qualify for rollover treatment.

Someone please correct me if I'm wrong, but I don't think anything short of complying with the "agreement", collecting a non-revocable annuity, or simply waiting, is do-able.

[Kirk Maldonado]

WWorden:

My recollection is that those regulations predate the enactment of ERISA (in 1974). If Congress believed that those regulations were overbroad an oppressive, they had plenty of opportunities to legislatively nullify them in the past quarter of a century. Obviously, rightly or wrongly, a lot of people on Capitol Hill disagree with your position.

[Guest wworden]

Thanks for the continuing comments on this thread.

Mr. X: Can you please email me a copy of the Treasury Regulation if you have it? I've been all over the internet trying to find it but without success. My email is wworden@hotmail.com.

From the proposed Repayment Agreement presented to me, it is true that I would be able to withdraw the entire amount of the accrued benefit if the plan were funded at 110%. If the plan becomes funded at 110% and the Administrator so certifies, then the Repayment Agreement ends.

As I understsand it, I must deposit in escrow 125% of the "restricted amount," and the account must always contain that amount. If it's invested in something that declines, I must re-fund it up to the 125%. Also, that amount is subject to being given back to the Plan, hence the term "Repayment Agreement." On the other hand, if the value of the escrow exceeds the 125% I am allowed to make disbursements of the amount in excess in accordance with rules for IRA distributions.

AndyH: The plan does allow payments of "installments" if by that you mean monthly retirement benefits. One option I have is to leave all the money with the Plan. I can then draw a benefit as early as age 55. I don't know all the mechanics, but I think it IS based on an annuity.

The plan also allows for a lump sum distribution, and that is what I intended to do until presented with the Repayment Agreement.

Kirk Maldonado: Somehow I got the idea that this Treasury Regulation was issued in 1995. I'm not sure of that and can't even cite what makes me think that. I suppose I added the fourth rhetorical question in my initial post based on frustration. I can see in the replies so far a number of opinions on what the regulation means and what can and cannot be done. That only increases my frustration. The laws, rules and regulations seem so massive and so obscure it's hard to know what's permitted and what's not. You are absolutely correct that a lot of people on Capitol Hill disagree with my position! I'd probably characterize it as "virtually all" rather than "a lot."

Thanks again for the comments. If I happen to come across a copy of the referenced regulation, I will let everybody know where to find it. By the way, I emailed Treasury, and they replied it was an IRS matter and referred me to the IRS site. I had no luck there finding it.

WWorden

[AndyH]

An "installment" is not necessarily the same as a monthly pension which all pension plans must allow for.

By installment, I mean payments for a set amount for a specified period, until the balance is exhausted after crediting either actual earnings or a fixed rate of earnings.

Or, it could be payments for a specified period only, with variations in the payments.

Either way, it differs from the "monthly pension" which is always allowed; this is paid for a period unknown (your lifetime, for example). Once this option is chosen, I don't think it can be changed once the fund is above 110% (i.e. later choose a lump sum).

With regard to the regulation, you can find it by going to the Calhoun law site (once of the sponsors at the top of this page) and looking under research tools, then regulations.

Hope this helps.