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lump sum payments after eff date and prior to adoption of amendment


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A plan says that eff 11/1/96 all lump sums will be paid under GATT assumptions. The amendment isn't adopted until 8/14/97. A person terminates in May 1997 and receives lump sum in June 1997. Should this lump sum be paid under pre amendment PBGC rates or can it be paid under GATT?

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The GATT amendment can have a retroactive effective date, but only if there are no lump sum payments made in that time.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Pax, That makes sense. So are you saying that if there is a lump sum after eff date and prior to adoption date, it would have to be under old basis? Clearly this employer (and I am not the plan administrator) has made lump sums during this period. So they must have some obligation.

Gary

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Not quite. Since the amendment has a retroactive effective date, any lump sums paid during the period between effective date and actual adoption date would be subject to IRC 411(d)(6), and should be the greater of the two bases.

Note that it would be hasty to assume the GATT basis will be less. My exeperience is that as age increases, the lump sum under the GATT basis gets closer to the PBGC basis. At about age 64, they are very close. Thus if you had a lump sum paid to an EE over age 65, then the GATT basis is likely to be greater.

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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