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Mister Met

Retroactive Annuity Starting Date Interest

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Ppt. could have started collecting in 2005, but is now starting to collect an annuity in 2013. What interest rate is used to accumulate the missed payments to now - interest rate from 2005, or current rate? Or just a "reasonable" rate?

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To make sure the situation is understood: Participant had met all of the plan's requirements for collecting benefits (including, if applicable, separation from service) back in 2005. Plan permits election of retroactive annuity starting dates with no limit as to how far back. Proper spousal consent, if applicable, has been received (preferably based on complete and accurate information), since the potential survivor benefit would presumably be much lower than if payments commenced effective as of a current date, and the catch-up payment goes to the benefit of the participant, not the spouse (at least not directly).

I think that the use of a single reasonable rate to bring forward all of the retroactive payments is acceptable. Watch out for possible issues involving IRC Section 436 (if it is a db plan with an AFTAP below 60%, no retroactive payments may be permitted, even with a short period of retroactivity; if it is a db plan with an AFTAP between 60% and 80%, partial restrictions may get in the way, especially since there would be something like 100 months of back payments, which would presumably exceed half of the present value of the benefit).

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Be careful.

- Does "...could have started collecting in 2005..." refer to the NRD? If so, you probably have to be concerned about actuarial adjustment for late retirement, rather than retroactive payments.

- To an early retirement eligibility date? If so, you first have to determine if the EE elected commencement of payments. (Mere eligibility to commence is not the same as election to commence.) In other words, there are no retroactive payments unless there was an election in favor of commencement.

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Does plan allow for retro payments? You may consider using the interest rate defined in the actuarial equivalence definition in the plan document.

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