Client wants to purchase an annuity to provide the payment. Would this be considered to be a payment "on behalf of the restricted employee" and therefore not allowed?

Just to fill in the blanks, plan is underfunded and would not meet any of the exceptions.

Logically, that would not be permissible since the value of the plan would be depleted by the lump sum amount needed to purchase the annuity. That would defeat the whole point of keeping plan assets around in case the plan terminates with not enough assets. I am sure if you read the applicable cites like 1.401(a)(4)-5(b) and Rev. Rul. 92-76 that will confirm what I am saying.

That's what I thought, and why I referred to the "on behalf of" wording. Thanks for the confirmation.