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Pension Plan Lump Sum Payments Halted by IRS

Saul Brenner, CPA, J.D., LL.M. 08.05.2015 | eVisor

The IRS has dealt a blow to pension plans looking to replace annuity payments with lump sum payouts. A July 9, 2015 notice1 announcing plans to modify tax code Section 401(a)(9) effectively halts this practice commonly used by struggling defined benefit plans as a de-risking strategy.

The amended regulations will provide that qualified defined benefit plans are generally not permitted to replace joint and survivor, single life, or other annuity currently being paid with a lump sum payment or other accelerated distribution method. There may be some exceptions for certain accelerations of annuity payments.

This move highlights the concerns of the IRS, as well as the Department of Labor and the Pension Benefit Guaranty Corporation, about companies transferring risk to plan participants who would then no longer expect a lifetime income.

1 Notice 2015-49

Questions? Contact your Berdon advisor or Saul Brenner at 212.331.7630 | sbrenner@berdonllp.com.

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