In 2013 and 2014, several high-profile pension plans offered participants who were currently receiving benefits the opportunity to cash out their future annuity payments and receive a single lump-sum payment instead. Initially, the IRS endorsed these programs in a series of private letter rulings.
However, in 2015, the IRS announced that it viewed cashing out participants in pay status as a violation of the minimum required distribution rules, and it promised to update its regulations to make this clear. This effectively put an end to pension plans offering lump sum distributions to participants in pay status except in the context of a plan termination.
The IRS has just announced that its position has changed yet again. The IRS no longer views a lump-sum window for participants in pay status as a violation of the minimum required distribution rules.
With the IRS’s moratorium lifted, a lump-sum window for participants in pay status is once again an option that plan sponsors may want to consider as a tool for “de-risking” their pension liabilities.
For more information and guidance, please contact your Executive Compensation and Employee Benefits Counsel at Smith, Gambrell & Russell.