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IRS rulings on pension annuity conversions to lump-sum benefits


In its first guidance on the issue, the Internal Revenue Service in two private letter rulings, says giving retirees the ability to convert the monthly pension benefit they receive from their former employers into a lump-sum benefit does not violate federal pension law or regulations. In those rulings, the IRS said a lump-sum benefit option that would be available during a limited period of time is a “permitted benefit increase.”

The rulings as more employers are examining such an approach as a way to reduce the risks and costs associated with offering a defined benefit plan. Read the first ruling and the second ruling.