IRS closes lump-sum window for retirees already receiving benefits

Defined benefit plan sponsors can no longer replace annuity payments with lump-sum distributions to retirees and their beneficiaries, the IRS said Thursday.

In Notice 2015-49 amending required minimum distribution rules, the IRS said that lump-sum payments no longer will be permitted for people already receiving benefits.

With the amendments applying as of July 9, “it definitely has an immediate impact,” especially for people about to draw benefits, David Levine, a principal at Groom Law Group in Washington, said in an interview. “It definitely restricts the lump-sum windows, which is consistent with all the regulatory agencies’ focus on lifetime income rather than lump sums.”

Further clarification is needed on how the rule change will affect terminated plans, he said.