Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

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. If the employer maintains more than one plan, and it is proposed to take an LSD from only one of them, have the employer certify that this requirement is met. 2.4.05 Exceptions to the all-in-one-year rule “[A]ccumulated deductible employee contributions” can be ignored in determining whether the employee has received a distribution of his entire plan balance. § 402(e)(4)(D)(i) . This type of contribution, which was permitted under § 72(o) only for the years 1982–1986, is rarely encountered. Another exception: “Dividends to ESOP participants pursuant to section 404(k)(2)(B) of the Code are not treated as part of the balance to the credit of an employee for purposes of the lump sum distribution rules...Thus, such distribution does not prevent a subsequent distribution of the balance to the credit of an employee from being a lump sum distribution.” PLRs 9024083, 1999-47041. Note that RMDs are not ignored in applying the all-in-one-year rule. If a retired participant or a beneficiary starts taking RMDs from the plan, he must take out the entire plan balance in the same calendar year he takes the first RMD, or he will lose out on LSD treatment.