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IRS to Eliminate Common ERISA Pension Plan De-risking Strategy

IRS to Eliminate Common ERISA Pension Plan De-risking Strategy

Author: James F. McDonoughDate: August 7, 2015

The amendment to the ERISA pension plan de-risking strategy will prevent lump sum payments in lieu of remaining annuity payments.

The IRS announced in Notice 2015-49 that it will no longer allow lump sum cash-outs, a practice it previously permitted under several rulings. However, the IRS's new position will place limits on lump sum offers from employers' plans for participants who are not yet receiving distributions from pension plans covered by ERISA. In the notice, the IRS stated that lump sum cash-outs "undermine the intent" of the minimum required distribution regulations that prohibit accelerated annuity payments for pre-existing ERISA pension plans.

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