Jump to content

Final Regs - Retroactive Annuity Starting Date


Guest KGriffith

Recommended Posts

Guest KGriffith

Our plan document does not currently allow RASDs, but would like to amend the plan to do so. Does anyone know when an amendment must be made? I'm thinking it should be by the end of the year, but I couldn't find anything in the regulations.

Link to comment
Share on other sites

Guest Harry O

Why do you want to add a retro annuity starting date? After the IRS did its usual job of mucking up a good concept by issuing unworkable regs, I rarely see where this is worthwhile.

Link to comment
Share on other sites

Guest KGriffith

Unfortunately the discussions have taken place between the actuary, client and the attorney in my office, so I don't know why the decision was made, I've simply been asked to prepare the amendment. Do you happen to know when the amendment must adopted?

Link to comment
Share on other sites

This is not a required amendment, so you are making a discretionary change to the plan. Because of that, I'd assume the amendment has to be made prior to it being effective. Otherwise you would be administering the plan in a way that isn't called for in the plan document and wasn't required to be done under the law.

This is similar to increasing the benefit formula. Would you just start paying out more to current terminees just because the intent to amend by the end of the year has been voiced?

Link to comment
Share on other sites

A retro benefit can use up some of the overfunding for owners. This is especially important when the participant is at the 100% of pay 415 limit.

As an administrative issue, I don't see the problem about the amendment. If a person applied timely for a benefit, effective to the date of intended retirement, you are just issuing checks for the period of time while the application was being processed. On the larger plans I have handled, this lag time is considered a normal problem, and is dealt with as a routine course of business.

However, if the retro payment is considered after the fact, with a decision made to catch up for prior eligible payments, then I can see a simple amendment that permits the participant to apply for retirement benefits to commence as of a date up to 12 months prior to the date the application is made.

Link to comment
Share on other sites

Guest Harry O

I don't know . . . I work exclusively with large plans and the retro annuity rules are a pain, especially in plans with lump sums. You also need spousal consent to the retro date even where the the underlying form of benefit wouldn't otherwise require it, and you have the interest issue. All in all, an irritant.

Link to comment
Share on other sites

Harry, when you say "the IRS did its usual job of mucking up a good concept by issuing unworkable regs" are you refering to 1.417(e)-1?

I assume you are, but I just wanted to make sure there wasn't something else out there "mucking" more things up.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

Link to comment
Share on other sites

It seems to me that if the "partial lump sums" are $50,000 or less, and the life annuity is also $50,000, then the partial lump sums are part of a series of distributions over more than 10 years (unless of course the life expectancy were less than 10 years), making them ineligible for rollover treatment. If instead the partial lump sums are more than $50,000, then I would think that the accrued benefit would need to be reduced.

Just my take. I've dealt with this before as well so am always looking for a new ideas. Same problem exists with restricted payments it seems to me.

Link to comment
Share on other sites

Same problem exists with restricted payments it seems to me.

I have heard Jim Holland speak on this very topic and he said that the SLA payments paid to a restricted HCE as he is waiting for the plan to become sufficiently funded are ineligible for rollover.

Personally, I would disagree, but who am I to chime in?

"What's in the big salad?"

"Big lettuce, big carrots, tomatoes like volleyballs."

Link to comment
Share on other sites

Ah, it's limited to the SLA, but it is not an SLA. As soon as the plan becomes sufficiently funded, the lump sum is distributed (assuming that was the election of course). I would consider it a lump sum election first, and that it's only because of the restriction that the SLA is being distributed now. Obviously though, others disagree.

To be clear, I consider this to be different than David's scenario.

"What's in the big salad?"

"Big lettuce, big carrots, tomatoes like volleyballs."

Link to comment
Share on other sites

My take is that the retroactive payment of one year's benefit is intended as a periodic distribution. The maximum rollable amount is the greater of the plan or the 417e lump sum value, limited to the 415 lump sum value. If that is based on 100% of pay benefit, then nothing more is rollable.

In addition, I see it as two benefit elections: First, the participant elects an annuity payment with up to one year of retroactive payments. The plan must have a valid spousal election if the retroactive payment is not J&S. This amount is a taxalbe periodic distribution. Once that payment is made, a second benefit election is the lump sum amount, which is rollable.

An additional point to make: The annuity starting date is also retroactive, and the 415 limit applies as of that retroactive date for any age adjustments or initial amounts. This is important when the 415 dollar limit is in play, not the salary limit.

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...