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How to calculate lump-sum distribution amount from a governmental defi


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Guest PALAWYER

IF Section 401(a)(11) does not apply to government plans- hence no j%S requirement- what do you do to determine the interest rate for lump sum payouts from a DB plan- what interest rate should be used- Gatt? or something else? How do you calculate present value in a Government DB Plan?

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Does the plan address this already? If so, then plan provisions would appear to be most important, even if it is more "generous" than required.

IRC 401(a)(25) requires that actuarial assumptions be specified, but I don't know if this has full applicability to govt. plans. Of course, the plan would be exempt from IRC 411.

On a practical level, it seems that the sponsor needs to establish a philosophy about this, such as, "we want the rate to be fixed" or "we want the rate to be tied to some external measure of interest". The former might mean that the rate is fixed at (eg) 7.5%. The latter might mean that the rate is defined as (eg) "prime plus 150 basis points". There is no reason that the plan could not use the GATT rate, or that rate plus some loading factor, etc.

I also believe the same issue applies to the choice of a mortality table, and I suggest the use of some current standard table, which would allow for future modification by plan amendment.

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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The only place in which a governmental plan must use any specific assumptions is in calculating 415 limits. Otherwise, the only requirement is, as pax mentions, that the actuarial assumptions must be stated in the plan.

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The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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