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Senators seek answers following IRS shift on lump-sum payments

Two Democratic senators sent a letter to Treasury Secretary Steven Mnuchin and IRS Commissioner Charles P. Rettig requesting an explanation for the IRS' March decision to reverse course and allow U.S. companies to once again offer lump-sum windows to retirees and beneficiaries.

Both the IRS and the Treasury said last month that they no longer plan to amend the minimum required distribution regulations under 401(a)(9) of the Internal Revenue Code to formally ban those types of lump sums.

The announcement reverses a 2015 notice in which the IRS said it intended to amend the code to disallow lump-sum offers to participants already receiving benefits. The 2015 notice was issued after a GAO report found that disclosures to retirees about these offers often omitted key information and that retirees often did not fully understand the trade-offs involved.

Sen. Patty Murray, D-Wash., ranking member of the Senate Health, Education, Labor, and Pensions Committee, and Sen. Ron Wyden, D-Ore., ranking member of the Senate Finance Committee, sent the letter March 27.

While companies generally offer lump-sum buyouts to improve their balance sheets and reduce the total liabilities of their pension plans, they transfer risk to their retirees in the process, the senators wrote.

"This practice is particularly concerning for retirees who will once again be required to make critical decisions that could leave their retirement security at much greater risk without receiving sufficient information for making such decisions," the letter said. "Treasury and IRS announced the proposed prohibition four years ago in Notice 2015-49. The decision to reverse course on this issue, without providing any explanation for the reversal, is baffling and alarming."

The senators have asked for a briefing on the matter no later than April 12 to answer several questions:

  • When was the decision made to allow lump-sum buyout offers to retirees in pay status again? Who made this decision?
  • What prompted this decision? Was this decision made following meetings or correspondence with groups, individuals or organizations? If so, identify the groups, individuals and organizations.
  • Were any reports, analysis or data considered or produced by Treasury or IRS in making this decision? If so, provide such reports, analysis and data.
  • Has Treasury, IRS or other parts of the Trump administration discussed any of the concerns that prompted Notice 2015-49?
  • Does Treasury, IRS or other parts of the Trump administration have any plans to address the concerns that prompted Notice 2015-49?
  • What information will the Treasury and IRS look for as it "continue(s) to study the issue of retiree lump-sum windows" as announced in Notice 2019-18?