436 restriction no longer applies

We have a plan that had an AFTAP of 76% for 2017, but we recently completed the calendar 2018 plan year actuarial valuation and the AFTAP is now over 80%.  That determination was made 6/11/18.

A participant making a claim for their benefit elected not to defer the election due to the prior restriction and decided to take the 50% lump sum and monthly payment for the balance.  The plan has a lump sum option and purchases annuities for monthly benefits. 

The benefit commencement date for this would be 6/1/18.  In this situation our procedure is to pay the lump sum portion, and pay the monthly benefit portion from the plan.  If/when plan comes out of restrictions, an annuity would be purchased for the benefit being paid from the plan.

The benefit is about to be processed, but has not yet been paid.  Would it be reasonable or even legal, to contact the employer (who is in very early stages of terminating the plan), explain the situation and ask if we could contact participant to ask again if they'd like to withdraw their current election so they could receive full lump sum?  Thanks

What does the plan document say?  There should be provisions in the document that address what happens when restrictions are lifted.  The document should say if they are given the option to elect a lump sum on the previously restricted piece, or not.  This was part of a required amendment a few years ago.

If the document doesn't give them the right to change the election once restrictions are lifted, I think it would be a problem to let them arbitrarily make a change.  Take a look at 1.401(a)(9)-6. 

All that said, I think it is poor consulting to blindly purchase annuities after every election.  That action likely cost the sponsor a significant amount of extra money over the years, so I would hope they were the ones driving that boat.

agree with Effen what does the document say; but, I would think  being post ASD with the annuity election in place is  too late..suppose participant had bad accident or bad health diagnosis post 6/1..aren't you now letting him select against the plan by taking the lump sum?