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IRS Declares a Halt to Lump Sum Windows for Retirees in Pay Status

On July 9th, the Internal Revenue Service announced that Plan Sponsors can no longer offer lump sum windows to retirees who have begun receiving their installment payments. Previously, Plan Sponsors had the ability to initiate a lump sum window which would allow participants in pay status to convert the remaining stream of their annuity payments to a lump sum. This change, which represents a departure from a stream of Private Letter rulings issued by the IRS, may be tied to concerns within the government about the impact of replacing a lifetime income stream produced by defined benefit plans on participant retirement readiness. It is notable that this announcement is not likely to impact lump sum programs targeted to participants who are not yet in pay status such as terminated vested employees. The IRS is in the process of issuing the actual proposed regulation, which will provide the additional clarity on this topic.