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DB Termination


Guest JMN

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For participants in pay-status who have already attained their RBD's, how are RMDs calculated where the plan is terminated and the present value of a benefit is paid out as a lump sum (as elected by a participant with spousal consent)? This is necessary to know what portion of the lump sum is not eligible for rollover treatment pursuant to 402©(4)(B).

Does it matter that monthly payments have already been made during the same year as the termination-based lump sums?

Any thoughts are appreciated.

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I imagine the DB plan has always used the annuity method for RMD where the annual requirement was met since the distribution was being paid over the life of the participant. Now that the plan is terminating, I presume that the participant opted for a lump-sum payout in lieu of a settlement annuity purchased by the plan from an insurance company granting the same stream of payments over the participant's life. Given this, it would appear reasonable to use the actuarial present value of the participants accrued benefit at the beginning of the year and divide that amount by his life expectancy during the year in order to calculate his RMD for the year. Any amounts already paid would go toward satisfying that amount. Any remaining amounts due would be distributed directly to the participant while the rest may be rolled directly to an IRA. I would, certainly, consult with your actuary on this; it's their show.

Good Luck!

CPC, QPA, QKA, TGPC, ERPA

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Thanks for the reply and suggestion.

I believe it would be appropriate to take the APV of the amounts immediately before the termination and treat that as a distribution from a DC plan. Section 1.401(a)(9)-6, Q&A-13((b)(1) and Q&A-1(d) (single sum payments) appears to support this result.

Does this mean that, for purposes of determining the RMD for the distribution calendar year in which the termination/lump sum occurs, a participant who has attained his RBD and has been receiving annuity payments may disregard the RMD that would otherwise be required under the annuity form, and determine the RMD for that distribution calendar year strictly by reference to the lump sum? That is how I interpret 1.401(a)(9)-6, Q&A-1(d).

Anyone have any thoughts about this?

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