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.