Lisa A. Oddis- Case Implementation Specialist
An In-service Distribution is an option in some Nonqualified Plans. It allows participants to elect to take a distribution from their account balance during working years. For participants, this can be a valuable tool for future expense funding such as children’s education, wedding funding, that retirement house on a lake in the north woods or a snowbird escape somewhere warm.
The election is usually made at least a couple of years prior to the chosen payment date. It might also be tied to vesting. The plan document would state what the parameters are for elections and the timing of payments. The payments must be made within the year the payment is elected; your plan document will give further details.
The current year’s distribution date cannot be changed. Per Section 409(a), participants may change future elected distribution dates at least one year prior to the elected date and must elect a new payment date at least five years from the current elected date. This option provides a greater amount of flexibility but also requires closer tracking by Sponsors and Participants. Sponsors can consult with their Third Party Administrator (TPA) or their internal benefits team to develop the tracking and communication process.
Participants should review their elections at least annually– open enrollment is a good time– and plan accordingly based on current needs and future goals.
EBN advisors are here to answer any questions you may have. You can also check out our Resource Center.