In a move that reverses its previous stance on retiree lump sum windows, the Internal Revenue Service (“IRS”) recently published Notice 2019-18 announcing that it will allow defined benefit pension plans to offer a lump sum payment to retirees in pay status. This is a reversal of the stance the IRS took in 2015 effectively shutting down retiree lump sum windows.
For many years, pension plan sponsors had been “de-risking” their pension plans by offering lump sum distribution windows to terminated participants, which eventually evolved into lump sum windows for retirees who were already receiving annuity payments. The IRS issued Notice 2015-49 prohibiting plans from offering these lump sums to retirees. You can read more about Notice 2015-49 and de-risking in a previous Nyhart article here.
The issuance of Notice 2019-18 once again allows plans to “de-risk” by allowing retiree lump sum windows, as long as all other legal requirements are satisfied (such as nondiscrimination, funding, etc.). The IRS has indicated that it will continue to study the issue and therefore, could change its position in the future.
If you have any questions regarding how this change may affect your plan, please contact your Nyhart consultant.