Is payment of a 409A benefit "in-kind" a problem?

[dv13]

409A account balance plan that says payment may be made in cash or in-kind. The plan is informally funded with COLI and payment is to be made in a lump sum. If the plan sponsor transfers the COLI policy to the participant as payment, is there an issue? I couldn't find anything in the Regs that prohibits this. 

[EBECatty]

As a general rule, 409A does not govern the medium of payment (i.e., cash vs. in-kind). See 1.409A-2(a)(1) and Section III.D.6 of the preamble to the 2007 final regs. That assumes, I think, that the amount of property transferred is of equivalent value, fully vested, etc. In other words, there may be other issues involved. 

[XTitan]

Another consideration is how the value of the policy is being measured, whether it's by the cash value or some other measure.  Shouldn't have a transfer for value issue since the policy is being transferred to the insured, and the company will still need to withhold taxes on the value of the distribution (whether from the policy or other sources).

[Peter Gulia]

And consider which person has a duty or obligation for wage and income tax reporting, and whether that person will have enough information and sufficient systems.