Can a cash balance plan (or any DB plan, for that matter) provide that

[Scott]

An employer has a cash balance plan and wants to provide vested participants who leave employment prior to early or normal retirement age with a "portable" benefit by allowing them to rollover their accrued benefit into their new employer's plan. The only form of distribution under the plan eligible for rollover is a lump sum. The plan sponsor does not want to allow terminated participants to receive annuities until early or normal retirement age.

Can a cash balance plan (or any DB plan, for that matter) provide that a vested participant can elect a distribution upon separation from service prior to his early or normal retirement date, but ONLY if the participant waives the QJSA (with spousal consent) and elects a lump sum?

To take it a step further, could the plan condition the payment of the separation benefit upon the election of a lump sum AND an election of a direct rollover?

[richard]

You are asking two questions:

1. Can you allow a terminated vested individual to take an immediate lump sum without offering an immediate QJSA? No. The immediate annuity (admitted a very small monthly dollar amount) must be offered, although, as a practical matter, virtually no employees will take the tiny monthly payments. I wouldn't be surprised, however, if these monthly amounts are not being calculated or offered in practice --- the employee's won't mind, but would the IRS?

2. Assuming you offer the alternative of a QJSA, can you permit a terminated vested individual to take an immediatly lump sum only if he rolles it over to the employer's new plan? This question, in a slightly different form, was asked recently in an IRS conference is the Los Angeles area. The questions that was asked was "assuming you offer the alternative of a QJSA, can you permit a terminated vested individual to take a lump sum ONLY as a direct rollover to an IRA." The intend of the question was twofold -- to keep money in the retirement system (prevent leakage), and to help the plan sponsor avoid the administrative hassle of the 20% witholding and related filing. The IRS representative indicated he thought it would NOT be permitted, although it was late in the session and (subjective opinion follows) the questions was somewhat unclearly presented.

Any thoughts or experience by other readers ...

[Guest Laura]

I agree with Richard - no can do on both counts.

The only thing I would add is that the plan sponsor isn't required to offer the annuity form of payment to participants with a present value accrued benefit of less than $5000 (assuming the plan document so provides).