section 1 - The American College Online Learning Center

e. Defined-contribution plans(1) Value of the benefit is tied to the account balance, which is a single lumpsum.(2) If an individual elects an annuity, the amount is based on how much thelump sum will purchase.5. Checklist of qualified plan paperworka. Benefit election form—describes the amount of benefit payable under each of theoptional forms of distributionb. A qualified joint and survivor annuity notice and waiver form—required for mostqualified plans and many 403(b) plans. If the participant wants to elect a formother that a joint and survivor annuity, then both the participant and the spousemust sign a waiver in front of the plan administrator or notary.c. Right to a direct rollover—the right to have the benefit transferred directly to anIRA custodian or other tax-advantaged retirement plan. This option is meant tosimplify and thus encourage rollovers.d. Notice of tax treatment—explains the tax treatment of the distribution from the plan.e. 1099R—a tax form provided to the participant and the IRS when there is a lumpsum distribution.6. Optional forms of distribution in a tax-advantaged plan include:a. A life annuity—a stream of payments for the life of the participant with nopayments after death.b. A life annuity with a guaranteed term certain—a stream of payments for the longerof life expectancy or the term certain. If the participant dies before the end of theterm certain (for example, 10 years) benefits will continue to a chosen beneficiary.c. A joint and survivor annuity—a payment for the life of the participant, that willcontinue payments if the beneficiary lives longer than the participant.d. An annuity certain—provides payments of a specified amount for a specifiednumber of years or months.e. A single sum—the participant receives the entire benefit at one time.f. Installment payments—provide a way to liquidate an account balance over time,providing a specified payment for a specified period or until funds are depleted.7. Optional forms of distribution generally not available from qualified plansa. Discretionary withdrawals—the ability for a client to take as much as is needed atany timeb. Variable deferred annuities with lifetime benefit riders—deferred annuities thatallow for investment flexibility and the benefit rider offers some downside protectionc. Variable immediate annuities—similar to life annuities in that benefits are payablefor life, but the amount of each payment varies depending upon the underlyinginvestment performanced. Immediate annuities with inflation protection—offer increasing payments based ona fixed percentage each or based in the CPI indexe. Longevity insurance—an annuity that pays a fixed monthly benefit, but only at anadvanced age such as age 80 or 85f. Planning note: Expect employers to offer more options over time. The IRS andDOL are interested in participants having choices, and we are starting to seeregulatory changes to accommodate more options. For example, proposedregulations provide that longevity insurance could be purchased without violatingthe required minimum distribution rules.4.3