We have a new client who maintains a frozen traditional plan and a cash balance plan. In reviewing disbursement procedures, client maintains that for participants selecting annuity payments, IRS Distribution Code for 1099 should be '7' (Normal) in all cases regardless of payee age 'because our plan document allows for it.' Same with lump sum payments from cash balance plan, ostensibly because Normal Retirement Age is attained 'upon achievement of 5 years of service.'

I think they are concerned about 72(t) penalty and confusing 'retirement' with 'distribution.' We can explain all the particulars (exception codes, etc.) easily enough but I wanted a sanity check first. I find nothing in their docs which specifically address this issue and I can't imagine a plan overriding IRS reporting instructions. Or am I missing something?

I am confused. How does the plan doc trump the IRS? You aren't saying the doc specifies the distribution code, are you?

But whatever your answer to the above, the plan doc certainly does not "trump the IRS."

I don't read code "7-Normal Distribution" as having anything to do with Normal Retirement Age under the terms of the plan.

I can understand the confusion; I was confused and as I indicated I think the client is confused. No, their doc says nothing about distribution codes, they seem to be claiming that their plan design drives what distribution code is selected. My response is that 'normal retirement' does not equate to 'normal distribution', 'early retirement' does not mean 'early distribution', etc. I just want to make sure I'm not overlooking some technicality before I confirm to them that they are confused (the polite word) or wrong (the more frank word).