Jump to content

Lump Sum Distribution


Guest W J Parks

Recommended Posts

Guest W J Parks

A unit benefit plan provides that the NRD is the 1st day of December nearest the the 65th birthday. The normal form is a joint & 100% survivor annuity. The plan did not elect to come under GATT prior to 2000.

Questions:

1. May the lump sum actuarial equivalent be based upon the plan's normal form or must the AE be a life only?

2. The employer is tax exempt and also sponsors a non ERISA 403(B) (employee deferrals only) - are the 415 limits on the lump sum effected?

3. If the lump sum is not paid until 3 months later may the plan pay interest on the lump sum - if so, what rate may be used? (The retireee's 65th birthday is after the 12/1/99 NRD).

------------------

W.J. Parks, Jr., CLU, ChFC, JD, LLM

Link to comment
Share on other sites

Guest Mr. X

Point 1 - While I have seen documents that specify that a lump sum is the actuarial equivalent of a life annuity, unless there is that caveat, the lump sum is the actuarial equivalent of the normal form of benefit. Your document should state this.

Point 2 - No idea

Point 3 - In most of my documents if a participants distribution is delayed past their NRD, then their accrued benefit is the greater of: 1) the benefit earned in the plan ; or 2) the benefit at the end of the prior year (or at NRD in this case), actuarially increased for late retirement. The lump sum would then be based on that benefit. Check your document to see how late retirement benefits are calculated.

Link to comment
Share on other sites

I feel it s/b the act equiv of normal form.

I feel interest s/b added to the lump sum at the act equiv int rate. I have added int at the lump sum act equiv rate and at the plan act equiv rate. The latter appears more consistent and straightforward.

Link to comment
Share on other sites

Guest Steve C

I'll limit myself to the first question.

I agree that it should be the AE of the normal form. You should doublecheck the plan document, however, to verify that the normal form truly is J&S.

In the few times that I've encountered a "J&S normal form," I've found the term to be a misnomer. The actual normal form was a life annuity. The QJSA was then defined to provide a fully subsidized survivor benefit for married participants. The end result was that married participants could receive the unreduced accrued benefit in a J&S form, but all optional forms would be actuarially equivalent to the life annuity normal form.

Link to comment
Share on other sites

With regard to #2, the DB shouldn't be affected by the non-ERISA 403(B), because that wouldn't be aggregated for 415(e).

The reverse may be true, however. The 403(B) Maximum Exclusion Allowance could be potentially limited due to the DB if the "© election" is made with respect to the 403(B). I wouldn't think the form of benefit being a lump sum or monthly would have any effect, however, if the IRS standard rules are used for valuing the DB "contributions" for purposes of the Maximum Exclusion Allowance.

With regard to #2, you should make sure the 417 interest rates are complied with after you've adjusted the payment for interest, i.e. GATT or PBGC interest rate standard.

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...