Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

either been ruled not to be modifications, or have occurred without negative comment in cases or rulings involving other issues: A. Computer system change. When the paying agent, as part of a change in its computer systems, changed the date of monthly payments in a series to the first day of the month (instead of the last day of the preceding month), the change was ruled to be “ministerial,” and not a “modification,” even though the change meant that the recipient’s income would include one less payment for the year the switch was made. PLR 9514026. B. Plan termination. The participant in PLR 9221052 was receiving monthly payments from a pension plan. When that plan terminated in the middle of his SOSEPP, he sought to roll over the termination distribution to an IRA and continue taking the same monthly payments from the IRA. The IRS ruled that this change would not constitute a modification. C. Payments not on anniversary date. In the case of annual payments, it does not appear to be required that each year’s payment occur on the anniversary of the first payment. See Rev. Rul. 2002-62, § 2.02(d). See PLR 9747039, in which the IRS ruled that the participant would qualify for the exception “if [he] received at least five annual payments of $510,000 from IRA Y (at least one during each of the years 1997, 1998, 1999, 2000 and 2001) and does not otherwise modify his IRA distribution scheme.” D. Plan exhausted. If investment performance is poor, fixed payments under the amortization or annuitization method might exhaust the account. Running out of money due to taking the payments called for by the SOSEPP will not be considered a modification of the series. Rev. Rul. 2002-62, § 2.03(a). E. IRA provider error. In several cases, the IRS has ruled that a change in a SOSEPP did not constitute a SOSEPP-disqualifying modification where the change was the result of a financial institution error. See PLRs 2005-03036, 2006-31025, 2009-29021 ( ¶ 9.3.09 ), and 2009-30053. However: In PLR 2010-03033, the participant was receiving a monthly- payment SOSEPP. Because of financial institution error, an extra payment was sent, so that she received 13 payments instead of 12 in one year. The IRS granted her request for a late rollover of the extra payment (see ¶ 2.7.05 – ¶ 2.7.07 ), but expressed “no opinion” as to whether the extra payment constituted a modification of the SOSEPP. F. Participant error. In PLR 2006-01044, the participant started an amortization method SOSEPP from four IRAs, but due to a math error his first payment was too small by less than 2/10ths of one percent. The IRS ruled that the underpayment (and subsequent “catch up distribution” to correct the error) did not constitute modifications of the series.

What changes DO constitute a modification?

Here are some examples of prohibited modifications of a SOSEPP; see also ¶ 9.3.09 regarding transfers into or out of the SOSEPP-supporting IRA. A. Stopping the payments. See PLR 9818055, in which the participant terminated the series because she went back to work; she had to pay the penalty.