The IRS issued Notice 2015-49 (the "Notice") on July 9, 2015, effectively ending the ability of sponsors of qualified defined benefit pension plans ("DB Plan") to "de-risk" their plans by offering participants in pay status the opportunity to receive the present value of their future annuity payments in the form of a lump sum.

The Notice states that the Treasury Department and the IRS intend to amend the required minimum distribution regulations, effective as of July 9, 2015, to prohibit a DB Plan from replacing any ongoing annuity payments with a lump sum or other accelerated form of distribution.  The Notice reverses the position that the IRS had set forth in numerous private letter rulings, which concluded that lump sum windows were permissible (See PLRs 201228045, 201228051, 201422028, 201422029, 201422030, 201422031, and 201424031).

It is important to note that DB Plan sponsors can continue to provide lump sum windows for deferred vested participants not in pay status.  In addition, the Notice provides a limited exception for lump sum window programs that include participants in pay status and that were approved prior to July 9, 2015.  Specifically, the intended changes to the regulations will not apply to an acceleration of ongoing annuity payments done in connection with a plan amendment specifically providing for implementation of the lump sum window that met any one of the following conditions before July 9, 2015:

• The amendment was adopted, or specifically authorized by a governing body with authority to amend the plan;
• The amendment was the subject of a private letter ruling or favorable determination letter;
• Affected participants were provided with a written communication that stated an explicit and definite intent to implement the lump sum window; or
• The amendment was adopted pursuant to an agreement between the plan sponsor and a union specifically authorizing the lump sum window that was entered into and binding.

Employers sponsoring DB Plans who wish to implement a de-risking program now have fewer options available to them.  Such employers should work with their actuaries and counsel to determine appropriate de-risking programs that are consistent with applicable provisions of the Internal Revenue Code and ERISA.