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Lump sum when normal form isn't life and there's a table of....


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Quick question -

Plan has its own table to convert the normal form of "10 years certain + life" to other forms, including single life annuity.

For 417 purposes, do I do the lump sum first by:

a) Convert 10cc to life via the plan factors, and then convert the life amount to lump at 417 rates, or

b) Convert 10cc to lump with 417e factors, but convert 10cc to life separately with plan factors (even though the lump sum value of that life annuity would be different?)

Thanks in advance (and presume the plan's AE factors aren't going to override 417 minimums)

--Bri

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b.  The participant would be entitled to the great of the two lump sums.  You also need to make sure your relative value disclosures accurately compare the values.

Correct, the 417(e) lump sum is the minimum amount payable to the participant.  If the plan AE provides a greater amount, the participant would be entitled to the larger amount.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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It's that the plan's AE table of factors doesn't govern the lump sum payment, just the conversion to other annuities.  I'm concerned I might be erroneously applying the 415 methodology (where you have to convert anything different to the SLA to check the maximum) to 417e. 

So you're saying that I apply 417e to the life annuity amount even if it's higher than 417e as applied to the normal form.

(thanks!)

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Sorry, I think I misread your first statement and thought you had plan factors for the lump sum as well.

Is this a potential 415 limited lump sum?  If so, then it does get more complicated.

Ignoring 415 limits, you would apply the 417e rates to the normal form (10cc).  No need to convert to Life Only before determining the LS, unless 415 limits are in play.   You would use the 417(e) interest rates and applicable mortality table to determine the LS value of the deferred/immediate 10CC accrued benefit.  The plan document should tell you what rates to use, whether to use the immediate or deferred AB, and what do with early retirement subsidies, if any.  Typically, the LS is the PV of the deferral annuity in the normal form, but not always.

  

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Thanks - 415 isn't an issue.  So I did basically 180 myself, and realize the 10cc amount governs the 417e conversion, even if the separate life conversion would have a higher underlying 417e value.

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If that is true, the relative value disclosures should make that apparent to the participant.  If your QJSA is not the most valuable (ignoring the LS), you have a different problem. 

For example, lets say you have a 10CC of 1000 w/ LS value of $140,000.  Using plan AE the 1000 10cc = 1050 as SLA.  The SLA of 1050 would have a LS value of $142,000.  That is ok and the participant would only be entitled to the $140,000.  However, your relative value disclosers should show the SLA is worth 101.5% of the 10CC.  Lots of different ways to do it, but the participant s/b able to determine the SLA is a higher value than the 10CC.  Where you have a potential problem is if the QJSA is not the "most valuable" form of payment.  For example if your J&50 option is only worth 97% of the 10CC, you have a potential problem with 1.401(a)-20 Q/A 16.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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