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Hi,

Thank you all for your insight as always. I'm involved with a few things at once and have gone blank on this topic. Participant age 67 retires and requests a lump sum (DB Plan). The retirement and request was as of 1/1/22. If the lump sum is actually payed on March 14,  2022 do you calculate the lump sum as of 1/1/22 and give interest to 3/14/22? Thank you.

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You will get multiple answers to this question.  I will also assume the accrued benefit has been properly adjusted to reflect the commencement date.   

I don't think the request date is relevant.  We calculate lump sums as of the day of payment, but don't forget to allow time for processing and elections.  IOW, if you are just doing the paperwork now, there is no way you can legally pay it by 3/14, so we would probably determine the value as of 5/31 or some future date.

 

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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Thank you Effen. Since the participant is 67, the lump sum is less if calculated as of the payout date as opposed to the request date that was a few months earlier. Can a participant claim that if the payment was made quicker, he would have received a higher lump sum?

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That was the point of my first sentence.  I wasn't sure exactly what question you were asking.

You need to check your plan document and maybe talk to ERISA counsel.  The document should tell you how to handle people beyond NRD, but you definitely need to make an adjustment.  The total payout should not be lower at the later date, assuming the 415 limit is not in play.  You either need to actuarially increase the benefit to reflect the delayed commencement date  (NRD to commencement date), or you need to retro the payments from NRD.  Both are acceptable under the law, but I think most attorneys would say "retro payments" is the default if the document is silent.  IOW, you can only do an actuarial increase if it is expressly stated in the document.  If the documents is silent, you should retro the payments from NRD.  

I am also assuming this participant terminated prior to NRD.  If they were active at NRD, it can get even more complicated.  

Just to be clear, the 1/1/22 date is not relevant, unless it was the termination date and even then it still might not be relevant.  The adjustments need to be made from NRD.

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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The important date is the "Annuity Starting Date" which is the date at which the benefit may be paid. Unless the plan specifically allows for a retroactive ASD, the ASD must be a date after the QJSA notice is provided (which should be 30+ days before the ASD, but can be closer). 

If you are doing calculations now then as Effen noted you're looking at a likely ASD of 5/1. That is the date as of which your benefits should be calculated, including the lump sum. And you will need to actuarially increase from age 65 (depending on actual retirement and plan terms) to that 5/1 ASD. 

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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You asked: "Can a participant claim that if the payment was made quicker, he would have received a higher lump sum?"

Answer:  Only if he will agree that if the market increased during the time frame in quetion he sould have given back the higher higher lump sum. 

 

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