I have a plan with a participant who has worked the required hours for accrual but has received no compensation ( a spouse of course...). The plan provides a de minimis benefit of $10,000 per year. Now the plan is terminating. The participant has accrued 4/10 of the de minimis benefit which is a $4000 annual benefit payable at age 65. The present value of this benefit is approximately $26,000.


When I read 1.415(b)-1(f)(2) of the final regulations, I believe that although I cannot pay this amount out as a lump sum, since the payment in a particular limitation year would exceed $10,000, I can pay it out over any fixed period, for example over 3 years. Any disagreement?

If the PVAB is $26,000, it looks like it would take more than 3 years, since you would be limited to $4,000 per year in any payment form.

I haven't the time to research this at the moment, but why can't the "form of benefit" be a "3 year installment" of roughly $26,000/3? Each annual distribution would be less than $10,000.

So it looks like we agree that the benefit can be paid out in installments - it doesn't need to be an annuity.

Now the question is whether the distribution each year is limited to $10,000 or is it limited to the portion of the $10,000 that is available after reduction for less than 10 years of service per 415(b)(5)(B). So if there are 4 years of service, in this example, the participant can only take out $4,000 per year.

It is $4,000. See the final regs:

(f) Total annual payments not in excess of $10,000--(1) In general. Pursuant to section 415(b)(4), the annual benefit (without regard to the age at which benefits commence) payable with respect to a participant under any defined benefit plan is not considered to exceed the limitations on benefits described in section 415(b)(1) and in paragraph (a)(1) of this section if--

(i) The benefits (other than benefits not taken into account in the computation of the annual benefit under the rules of paragraph (b) or © of this section) payable with respect to the participant under the plan and all other defined benefit plans of the employer do not in the aggregate exceed $10,000 (as adjusted under paragraph (g) of this section) for the limitation year, or for any prior limitation year; and

Paragraph (g) is the proration by service.