CB Retro Payment of 17 years

[JD54]

Active employee is being told that she must take a 17 year retro payment of her CB Plan because she was earning more on her Interest in the plan than she had made in her best 3 years that ended in 2004.  IRC 415 was mentioned in this case.  She is well past retirement age because of being covered under the old workers comp rules from the 80's.  They are offering her a Single Annuity option of much more money than is being offered as a Lump Sum payment due to her not receiving payments since 2004, along with interest and penalties I believe.  If she takes the Single Annuity option she will continue to receive a monthly annuity for life along with this retro payment.  All 10,15, and 20 year options would have to be started as though it was 2004.   What options do I have with this retro payment?  Can any of it be rolled into a Traditional or Roth IRA?

[CuseFan]

Not too clear on the situation from your description, but it sounds like she should have commenced in 2004 because actuarial increases to her benefit would cause such benefit to exceed the 415 limit of 100% of her high three-year average compensation (actuarial increases are often required after normal retirement age). Plans are required to commence benefits in such instance to avoid an impermissible forfeiture.

The annuity option includes makeup of past annuity payments with interest, a correction the plan is required to make. I do not believe the makeup payments are eligible for rollover as they would be considered part of the annuity, but I would consider enlisting a qualified tax advisor for a definitive answer as the amount is likely substantial.

I'm not sure a normal lump sum payment option would/should be possible as a correction, but this is an unusual situation. If the employee is retiring or is somehow allowed a new current "annuity starting date" (benefit commencement date, then maybe it's possible to get 17 years of annuity makeup and then a current lump sum of the present value of remaining annuity. Or is the lump sum being offered also retroactive to 2004? If so, that should be brought forward with interest. If a true lump sum in this fashion and no required minimum distributions (you say she is active) then that could be rolled over.

Do not understand connection between workers comp rules from the 1980's and her retirement age.

[david rigby]

2 hours ago, JD54 said:

They are offering her a Single Annuity option of much more money than is being offered as a Lump Sum payment due to her not receiving payments since 2004, along with interest and penalties I believe.  

Not so sure about this statement.  If the plan offers a LS, that should be included in whatever options are offered to participant (subject to what the plan says).  The participant (not "they") makes the choice of payment form.  It's possible the retroactive portion of a LS would equal the retroactive monthly payments.  The payment form option is important because that determines whether any portion is rollable.

[JD54]

Thank you both for your replies.  The CB plan is offering her a Lump Sum option along with a 10, 15, and 20 Certain payments.  The Lump Sum offer is substantially less than the Single Annuity option, so much so that I can pay Federal and State taxes for the Single Annuity option and still have more than what was offered in the Lump Sum Amount.  As I stated originally the Certain Payments would have been paid as though they began in 2004 and were also substantially less than the Retro Single Annuity option.   All these options did have a Retroactive payment included with them, but the Single Annuity had the most money and a continuing monthly annuity for life.  I only brought up the Workers Comp portion because that is how she is still considered an active employee and will continue to collect that portion as well.   I haven't found anyone who has seen a situation such as this and could advise me.  I would appreciate knowing which type of professional would be the most knowledgeable in this area.  Thanks again.

[Effen]

There is much here that I don't understand without actually seeing the benefit election form. (NO I don't really want to see it).  My point is, you should address these questions to the plan administrator.  If you are the plan administrator, they should be addressed to the actuary who put the election package together. 

Are you sure she isn't entitled to both the retroactive payments and the lump sum?  That would make more sense as the lump sum represents the present value of the future payments, and the retroactive amount would be the value of the past payments she did not receive.

How old is she currently?  What is the plan's Normal Retirement Age?  When you say "CB" plan, I assume you mean "cash balance"?

For David and CuseFan - Maybe what happened is she was entitled to retirement payments and the actuarial increase was greater than the 415 benefit, so they are retroactively paying the the 415 max since they can't legally give the rollup?  However, JD said she was "active".  So, the plan would also need an in-service distribution provision as well as a retroactive provision.  This definitely feels like some sort of corrective action. 

 

[JD54]

I am sorry that I did not mention that this is my mother.  She is 91 years old.  The plan only presented us with options that have been previously mentioned and when I requested more information, I was told to get a Financial Advisor or Lawyer.  They would not tell me any other options i.e., rollover to an IRA or even how the amounts that they were offering were calculated.  This is a cash balance plan.  She is entitled to a lump sum payment and that also has a retro component to it and is much less, cash wise, than the Single Annuity option.  Her normal retirement age would have been 65.  In the year 2004 she was 74.  I highly believe that this has been a corrective action that was probably caught in an audit and they are trying to clear this up before being penalized.  Don't get me wrong, it is a lot of money for the job that she performed, but the way they seem to be rushing the process and not responding to queries bothers me a lot.  In the end she will be collecting the single annuity for life along with her workers comp and is still considered an active employee.  I should be happy with that but something about how this was done has left a bad taste in my mouth.  Thank you.

[david rigby]

I wonder if you need a POA (power of attorney) for them to talk to you.  Another resource might be this "assistance" group from the American Academy of Actuaries.  https://www.actuary.org/content/pension-assistance-list-pal.  (I've participated myself.)

[Luke Bailey]

36 minutes ago, JD54 said:

She is 91 years old. 

Whatever you do, act fast and consider what the impact is on death benefits if there are any family member she cares about.

[JD54]

Thank you for the link to the American Academy of Actuaries. If they can at least explain what has happened then I will feel a little bit better.  I do have and have told the company of my POA, but it hasn’t helped me get more information. It is useful in making arrangements on the disbursement.  I understand the concern for her age and have made the proper arrangements once the funds have been received. Thanks again.

[Effen]

All prior responses are good.  Yes, contact the academy assistance group, yes speak to a financial advisor.  

The fact that she is well over 70.5 means a significant portion of that distribution would NOT be eligible for rollover due to the Minimum Required Distribution rules. She might be ok because she was still "active" due to worker's comp, but i don't know.   If she was not exempt from the rule, she could be facing a significant tax penalty, which you would be within your rights to ask the plan administrator to cover - assuming your mother hasn't been hard to locate, or ignoring past correspondence.  This is where you need a financial advisor, and you need to see the plan document, and you might need a lawyer.  The Academy advocate may be able to help as well. 

The Plan Sponsor might get more responsive if you ask if your mother is subject to any tax penalties, or ask if their are any issues with the Minimum Required Distribution rules.

 Or, just sign the form, give your mom the money, report the distribution on the 1040, and move on.  Even if you could roll some of it into an IRA, at her age, she would just need to pull it out fairly quickly due to the MRDs, so there isn't a lot of tax savings.  There may be other ways to spread out the tax hit, I think you are allowed to spread it over 5 years, but that is where the FA will help.