Auto Mfg Buyout Issues
L1: Auto Mfg Buyout Issues
Before hundreds of thousands of major auto mfg retirees were offered a lump sum buyout of their DB pension benefits in payout status, the mfgs requested and received a letter ruling from the IRS as copied below. This PLR basically confirmed that the offer constituted a permitted plan amendment and therefore did not violate the “non increasing” requirement of an annuity contract that otherwise met the IRS RMDs requirements under Sec 401(a)(9). However, the IRS was never asked about the retroactive penalty exposure for those whose annuities were:
1) Started prior to age 55 separation and
2) Had not run the longer of 5 years or to age 59.5
Instead, the retirees were told that they are subject to the 10% penalty on distributions received under the above circumstances plus interest. In other words, acceptance of the lump sum offer would bust the SEPP for those retirees.
There does not appear to be an obvious solution for these retirees who accepted the offer other than to request an exception (code for “other” on Form 5329) based onequitable inconsistency of a busted SEPP with the letter rulingreferenced below, and also because theprior payments were considered RMDswhen received and were still RMDs after the ruling.
But I may bemissing something else. Anyoneelse have any ideas under which these retirees could avoid thebusted SEPPcosts?
IRS Issues PLRs Permitting Retirees in Pay Status to Change Election to Lump Sum
Posted onOctober 4, 2012 by Haynes and Boone Benefits Group in Practical Benefits Lawyer
The U.S. Internal Revenue Service (IRSÛ) issued two private letter rulings regarding whether it would be permissible to amend a pension plan to include a lump sum election window for participants who were already in pay status. In one case, the window period was from 30 to 60 days. In the other case, the window period was from 60 to 90 days. In both cases, the IRS determined that although the window period would result in a modification to the payment period and an increase in the payment amount, the window period was permissible under the minimum distribution rules because the modification and increase would result from a plan amendment, as permitted under the regulations. One of the rulings also addressed the impact of the lump sum payments on the plan-specific mortality table. IRS Priv. Let. Rul. 201228045
2012-11-11 23:44, By: Alan S, IP: [220.127.116.11]