Life and Death Planning for Retirement Benefits

142

Life and Death Planning for Retirement Benefits

employee attains age 59½,” or “on account of” the participant’s death, separation from service, etc. Failure to distribute the entire balance in one calendar year is a mistake you cannot fix. In PLR 2004-34022, a retiring employee intended to have all of the employer stock in his account in his employer’s QRP distributed outright to him and to have all of the other assets in his account distributed directly to his IRA. Through a paperwork error, the distribution of employer stock occurred in 2002, but the transfer of the other assets did not occur until 2003. He did not have an LSD. The IRS ruled that it could not allow him an extension of the all-in-one-year deadline. A. Landmine: Post-distribution additions. Does a post-distribution addition to the employee’s account retroactively destroy the LSD status of the distribution? That depends: The “balance to the credit” of the employee (which must be distributed “in one taxable year”) is determined as of the first distribution following the most recent triggering event. If there is an addition to the account after that date (for example, a new employer contribution), that new addition is not part of the balance that must be distributed within the same taxable year to qualify for LSD treatment. If it is distributed within the same year, it is treated as part of the LSD; if it is not distributed within the same year, its existence does not disqualify the LSD. Notice 89-25, A- 6. To avoid concerns about a late-appearing asset, when distributing all assets of an account (or when terminating the plan), have the plan trustee sign a blanket assignment of all remaining assets, claims, etc., known and unknown, to the recipient (participant or beneficiary, as the case may be). Thus, the recipient, not the plan trustee, becomes the owner of the stray interest, dividends, and class action claims that seem inevitably to turn up after the plan is liquidated, and the newly-discovered dollars do not cast doubt on the LSD status of the terminating distribution. B. Landmine: aggregation of plans. In determining whether the entire balance to the credit of an employee has been distributed, certain plans must be aggregated. Specifically all profit-sharing plans of the same employer are considered to be one plan for this purpose; all pension plans of the employer are treated as one plan; and all stock bonus plans are treated as one. § 402(e)(4)(D)(ii) ; PLR 2006-17039. See PLR 2002-50036, in which the employer converted part of a pension plan to a stock bonus plan so employees could receive an LSD from the new stock plan without having to take anything from the pension plan. Unfortunately it is not always easy to determine what type a particular retirement plan is. The employee is entitled to a summary plan description for each plan; that should tell what type it is. But finding out what type of plan a particular retirement plan is does not necessarily end the problems with this requirement. For one thing plans may have to be aggregated, even if they are not both of the same type, if they have interrelated benefit formulas. Also, it may be impossible to obtain distribution of 100 percent of all similar plans. For example, the employer may have two pension plans (a defined benefit and a money purchase) that must be aggregated for purposes of this requirement, but the employer may permit lump sum distributions from only one of them. Here are more land mines surrounding this hurdle: