# Distributions when you leave or the plan ends

> Lump sums, annuities, rollovers, spousal consent, and what happens when the plan itself terminates.

Source: https://askactuary.com/distributions-at-termination  
Author: Mike Rutkowski, FSA, EA, MSPA

When a participant leaves, or when the employer ends the plan, the vested account is paid out. The choices are similar either way, but plan termination adds a few steps of its own.

## The short version

- Participants can choose a lump sum, which can be rolled to an IRA or another plan, or an annuity. In reality participants almost always choose a lump sum.
- Married participants need spousal consent to waive the joint and survivor annuity.
- When a plan terminates, every participant becomes 100% vested.

## When a participant leaves

| Option | How it works |
| --- | --- |
| Lump sum, direct rollover | Paid straight to an IRA or another employer plan. No tax withheld |
| Lump sum, paid to the participant | Taxable, with 20% federal withholding. Can still be rolled over within 60 days |
| Annuity | Monthly income for life, from the plan or through an insurance company |
| Leave it in the plan | Balances over $7,000 can generally stay until normal retirement age or plan termination |

Small balances of $7,000 or less can be paid out without the participant's consent, and are usually rolled to an IRA set up for them.

## Spousal consent

A defined benefit plan's default form of payment for a married participant is a joint and survivor annuity. (This is an annuity that continues until the later of the death of the participant or spouse.) To take a lump sum instead, the spouse must consent in writing, witnessed by a notary or plan representative.

## When the plan terminates

Ending a Cash Balance plan follows a standard sequence:

1. **Adopt a termination resolution** and set the termination date. Every participant becomes 100% vested.
2. **Notify participants.** PBGC-covered plans follow PBGC's standard termination notices and filings.
3. **Square the assets with the benefits.** Make a final contribution if there is a shortfall and a contribution is desired, or decide how to handle a surplus. See [Investments and risk](https://askactuary.com/investments).
4. **Pay everyone out,** usually by lump sum and rollover, typically within two to four months of the termination date.
5. **File the final Form 5500.** Due by the end of the seventh month after assets are distributed.

**Timing tip**

Owners near the 415(b) cap often time termination to the year their maximum lump sum peaks. The [calculator](https://askactuary.com/calculator) shows exactly where that peak falls.

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Educational information only. Not tax, legal, or investment advice, and not an actuarial valuation.
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