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ARTICLE · 28 FEBRUARY 2012

Proposed IRS Regulations on Partial Lump Sum Pensions Require Comparison With Plans’ Benefit Calculation Methods

McDermott Will & Emery
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Under some defined benefit plans, participants receive a portion of the benefit as an annuity and a portion as a lump sum. Sponsors of such plans should review the method used for calculating these benefits, particularly annuity benefits, to determine whether the combined value of both portions meets the minimum present value requirements for lump sums.

United StatesEmployment and HR
Alan Nesburg, PC
Alan Nesburg, PC
Stephen Pavlick, PC
Stephen Pavlick, PC
Daniel Senecoff
Daniel Senecoff
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Under some defined benefit plans, participants receive a portion of the benefit as an annuity and a portion as a lump sum.  Sponsors of such plans should review the method used for calculating these benefits, particularly annuity benefits, to determine whether the combined value of both portions meets the minimum present value requirements for lump sums.  Recent proposed IRS regulations include an interpretation of current law that may differ from the way some plans have been administered.

On February 2, 2012, the Internal Revenue Service (IRS) issued proposed regulations addressing the minimum present value requirements under Internal Revenue Code (Code) section 417(e) for defined benefit pension plans under which participants receive divided payments, typically a lump sum together with an annuity.  If a participant can receive both a lump sum and an annuity, these proposed regulations aim to simplify and encourage the participant's choice of annuity benefits. 

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