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IRS to Prohibit Lump-Sum Cashout Windows for Pension Plan Retirees

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September 2015

As described in a prior alert, the IRS issued Notice 2015-49, which abruptly announces the IRS’s intention to prohibit lump-sum cashout windows for pension plan retirees already in pay status. The IRS intends to prohibit lump-sum windows for retirees by proposing amendments to the “required minimum distribution” regulations under Section 401(a)(9) of the Internal Revenue Code. These proposed regulations would entirely prohibit lump-sum windows for retirees in pay status, unless the plan sponsor took certain concrete steps to offer a lump-sum window by July 9, 2015.

There are several other common pension de-risking strategies that are still available to plan sponsors, including offering lump-sum windows to deferred vested participants and beneficiaries who have not yet begun receiving benefits.

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