Going Forward
While this doesn’t affect the current exceptions for plan termination and a participant's retirement, the IRS regulations seek, in most cases, to prohibit changes to the annuity payment period for ongoing annuity payments from a DB plan for retirees who are past the required minimum distribution date (age 70-1/2), including those type of changes accelerating (or providing an option to accelerate) ongoing annuity payments. Going forward, the regulations would permit only the type of benefit increases that actually increase the ongoing annuity payments, and not include those that merely accelerate the annuity payments into a lump sum.
There are exceptions, basically for programs already in motion or ones that have already been communicated to beneficiaries, if one of the following occurred prior to July 9:
- A plan amendment providing for the retiree lump sum window was adopted (or authorized by the board or other governing authority).
- Plan participants received written communications detailing “an explicit and definite intent to implement” the program.
- Implementation of the retiree lump sum window program was authorized by a binding collective bargaining agreement.
- IRS issued a private letter ruling or determination letter approving the window program.
Earlier this year the Government Accountability Office (GAO) published a report calling on the Department of Labor to improve oversight by requiring plan sponsors to notify the agency when they implement lump sum windows, and to coordinate with the Treasury Dept. to clarify guidance on the information sponsors provide to participants. As part of that report, the GAO identified 22 plan sponsors who had offered lump sum windows in 2012, involving approximately 498,000 participants and resulting in lump sum payouts totaling more than $9.25 billion. Most of these payouts went to participants who had separated from employment and were not yet retired, but some went to retirees who were already receiving pension benefits.
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