A bifurcated benefit option allows participants to receive a portion of their benefit as a lump sum payment and the remainder as an annuity. While this option is somewhat uncommon, if your defined benefit plan offers it, you may have a December 31, 2019, deadline to adopt a compliance amendment to the plan.
In 2016, the Treasury Regulations relating to present value determinations were amended to specify how such determinations are to be made when bifurcated benefits are offered. The new Regulations were first effective in 2017. In Notice 2017-44, the IRS published model amendments that provide plan sponsors with options for plan language that is deemed to satisfy the amendment requirement.
The requirement to amend a plan that offers bifurcated benefits is included in the IRS’s 2017 Required Amendments list, which requires affected employers to adopt conforming amendments by December 31, 2019. For plan sponsors who use “pre-approved” documents (often referred to as volume submitter or prototype documents), the requirement may have been addressed previously by a unilateral amendment adopted by the document provider. If your plan uses an individually-designed plan document and permits the bifurcated benefit option, we encourage you to check with your legal counsel to determine if an amendment is required.
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