44. Restrictions on immediate distributions

Statement of Requirement: Code §§ 411(a)(11), 417(e)(2); Reg. §§ 1.411(a)-

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11, 1.417(e)-1, 1.401(a)-20; Rev. Proc. 93-47, 1993-41 I.R.B. 25; Rev. Rul. 2004-10, 2004-7 I.R.B. 484; Notice 2007-7, 2007-5 I.R.B. 395

Sample Plan Language:

Section 1. General Rule

If payment in the form of a qualified joint and survivor annuity is required with respect to a participant and either the value of a participant's vested account balance derived from employer and employee contributions exceeds $5,000 ($7,000 for distributions made after December 31, 2023) or there are remaining payments to be made with respect to a particular distribution option that previously commenced, and the account balance is immediately distributable, the participant must consent to any distribution of such account balance.

If payment in the form of a qualified joint and survivor annuity is not required with respect to a participant and the value of a participant's vested account balance derived from employer and employee contributions exceeds $5,000 ($7,000 for distributions made after December 31, 2023), and the account balance is immediately distributable, the participant must consent to any distribution of such account balance.

The plan administrator shall notify the participant and the participant's spouse of the right to defer any distribution until the participant's account balance is no longer immediately distributable and the consequences of failing to defer any distribution. Such notification shall include a general description of the material features, an explanation of the optional forms of benefit available under the plan in a manner that would satisfy the notice requirements of section 417(a)(3), and a description of the consequences of failing to defer a distribution and shall be provided no less than 30 days and no more than 180 days prior to the annuity starting date. The annuity starting date is the first day of the first period for which an amount is paid as an annuity or any other form. The consent of the participant and the participant's spouse shall be obtained in writing within the 180-day period (90- day period for plan years beginning before January 1, 2007) ending on the annuity starting date. The plan administrator shall notify the participant and the participant's spouse of the right to defer any distribution until the participant's account balance is no longer immediately distributable and, for plan years beginning after December 31, 2006, the consequences of failing to defer any distribution. Such notification shall include a general description of the material features, an explanation of the optional forms of benefit available under the plan in a manner that would satisfy the notice requirements of § 417(a)(3), and a description of the consequences of failing to defer a distribution, and shall be provided no less than 30 days and no more than 180 days (90-day period for plan years beginning before January 1, 2007) prior to the annuity starting date. H owever, distribution may commence less than 30 days after the notice described in the preceding sentence is given, provided the distribution is one to which

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sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, the plan administrator clearly informs the participant that the participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and the participant, after receiving the notice, affirmatively elects a distribution.

Notwithstanding the foregoing, only the participant needs to consent to the commencement of a distribution in the form of a qualified joint and survivor annuity while the account balance is immediately distributable. (Furthermore, if payment in the form of a qualified joint and survivor annuity is not required with respect to the participant pursuant to section _____ of the plan, only the participant needs to consent to the distribution of an account balance that is immediately distributable). Neither the consent of the participant nor the participant's spouse shall be required to the extent that a distribution is required to satisfy section 401(a)(9) or section 415 of the Code. In addition, upon termination of this plan if the plan does not offer an annuity option (purchased from a commercial provider) and if the employer or any entity within the same controlled group as the employer does not maintain another defined contribution plan (other than an employee stock ownership plan as defined in section 4975(e)(7) of the Code), the participant's account balance will, without the participant's consent, be distributed to the participant. However, if any entity within the same controlled group as the employer maintains another defined contribution plan (other than an employee stock ownership plan as defined in section 4975(e)(7) of the Code) then the participant's account balance will be transferred, without the participant's consent, to the other plan if the participant does not consent to an immediate distribution.

(Note to reviewer: The above sample plan parenthetical requiring only the participant’s consent for immediately distributable amounts applies only if the plan meets the safe harbor joint and survivorship requirements contained in section 7 of LRM #42.)

An account balance is immediately distributable if any part of the account balance could be distributed to the participant (or surviving spouse) before the participant attains or would have attained (if not deceased), the later of normal retirement age or age 62.

Section 2. For purposes of determining the applicability of the foregoing consent requirements to distributions made before the first day of the first plan year beginning after December 31, 1988, the participant's vested account balance shall not include amounts attributable to accumulated deductible employee contributions within the meaning of § 72(o)(5)(B) of the Code.