IRS Eases Distribution Limit Notice Rule

October 14, 2009 ( - Internal Revenue Service (IRS) officials announced that the Worker, Retiree, and Employer Recovery Act (WRERA) does not require plan sponsors to notify participants and beneficiaries about lump-sum distribution limits if they are not eligible for the distributions anyway.

The IRS said it issued the clarification after getting questions about notices to participants and beneficiaries in pay status. Many defined benefit plans had to certify their adjusted funding target attainment percentage (AFTAP) by October 1, 2009, and depending on their AFTAP, some plans might have been subject to benefit restrictions, the IRS acknowledged.

Plans subject to certain benefit restrictions under Section 101(j) of (Employee Retirement Income Security Act) ERISA have to notify participants and beneficiaries within 30 days.   

The tax agency said ERISA Section 101(j) “does not require notice of a benefit restriction affecting the availability of lump sums to participants and beneficiaries in pay status who, without regard to any [tax code] Section 436 limitation, can no longer elect a lump sum payment.”

IRS officials admitted in a special edition of Employee Plans News: “We  recognize that not having to provide notice to participants and beneficiaries to whom the limitation could have no application would reduce costs, administrative burdens and participant confusion.”

IRS said it would issue more detailed guidance on ERISA Section 101(j) and scheduled a phone-in seminar for October 28 to further discuss plan distribution issues. More information about the seminar is available here .

The Employee Plans News special edition is available here .