Many defined benefit pension plans either do not offer lump-sum payments (other than small cash out amounts) or offer either a full lump-sum payment or an annuity form of payment. For those plans that offer an all-or-nothing lump-sum payment, the government believes participants who elect the lump sum may face a greater risk of outliving their retirement savings. The IRS has issued final regulations permitting a plan to explicitly split the accrued benefit into a portion payable as a lump sum and the balance payable in the form of an annuity without requiring the annuity portion to be subject to the Code Section 417(e) actuarial conversion requirements. The final regulations contain specific rules on the calculation of the two portions and include a number of examples that illustrate application of these rules.
The final regulations are available here.