when the initial payment is due. If they are considered as separate payments, then each payment is subject to its own 5 year deferral rule.
Also, if an employee originally elected an annuity form of payment, he may elect a different form of annuity anytime up to retirement without regard to the 12-month and five-year rules. The form of the new payment must be actuarially equivalent to the form originally elected applying reasonable actuarial methods and assumptions.
For example, assume Mary elected a joint and 50% survivor annuity to begin at age 65. Shortly before retirement, Mary decides that she would prefer a joint and 100% survivor annuity. As long as the assumptions used to calculate both benefits are the same, Mary will not need to delay the start of her benefit payments for five years (i.e., to age 70). However, if Mary wanted to elect a lump sum, she would need to make that election before age 64 and could not receive the payment until age 70.
The final rules clarify that changes in the form or time of payment apply separately to each payout election. For example, if the participant originally elected to receive a life annuity upon retirement or death, the participant can change the form of payment for retirement without changing the form of distribution upon death.
The rules also permit a plan to provide that an intervening event will override an existing payment schedule already in pay status. For example, a plan may provide that a participant will receive equal installments paid over 15 years upon retirement, but also provide that if the participant dies after the payments begin, all remaining benefits will be commuted and paid in a lump sum.
Additionally, the final rules permit a nonqualified plan that does not already have a small benefit cash-out provision to add such a provision, subject to the following rules:
The participant’s entire benefit in all nonqualified defined benefit plans sponsored by the employer must be cashed out; and
The present value of the total cash-out amount cannot exceed the current year’s 401(k) deferral limit
g., $15,500 for 2008).
Special Rules for Specified Employees
Payments to a “specified employee” of a corporation that has publicly-traded stock must be delayed at least six months following his separation from service for reasons other than death, disability or change in control. This rule applies to all members of a controlled group as long as any one member of the controlled group has publicly-traded stock, including stock traded on a foreign exchange.
For these purposes, a specified employee is defined in the same manner as a “key employee” as any:
Officer earning more than $150,000 per year in 2008 (adjusted annually for inflation);
5% owner; and
1% owner earning more than $150,000.
For administrative ease, an employer may delay payment for six months for a larger group of employees (but not more than 200) covered by the plan, even if some of the employees are not key employees.
The identification of key employees is based on a 12-month period ending on an “identification date” chosen by the employer, which must be consistently applied to all nonqualified deferred compensation plans. The identification date can be any date selected by the employer. Once selected, it must be used consistently from
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