Sutherland Asbill & Brennan discusses a series of recent rulings related to lump sum distributions from defined benefit plans.
The practice of offering lump-sum distributions has become increasingly popular among defined benefit plan sponsors looking to decrease volatility or other defined benefit plan risks. In some situations, plan sponsors offer the lump sum to participants in pay status as well as terminated vested participants who have not yet commenced payments.
In late May 2014, the Internal Revenue Service (IRS) released a series of four private letter rulings concluding that defined benefit pension plan amendments allowing participants in pay status to elect, during a limited time period, lump-sum distributions of their remaining plan benefits were permissible under the required minimum distribution rules of the Internal Revenue Code (IRC).
The rulings follow two similar private letter rulings issued by the IRS in 2012, and highlight the fact that these types of arrangements require a range of considerations under the IRC and Title I of the Employee Retirement Income Security Act (ERISA), regardless of whether they are offered to terminated vested participants or participants in pay status.
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.