Restrictions on Lump Sum Distributions to HCEs

[Andy the Actuary]

FYI

In the IRS phone forum on MAP-21, today, Michael Spaid, IRS Actuary posed a question from a forum participant,

"Assume a DB plan implements MAP-21 effective 2012 as intended by the law. If the Plan prescribes that the 110% test to determine restrictions on pre-termination distributions to HCEs under 401(a)(4) uses Funding Target as a proxy for Current Liability, then for this purpose may the FT recognize the MAP-21 rates?"

Mr. Spaid commented, "The IRS is not taking a position on this. Do what seems reasonable."

[KimberlyC]

Thank you. So he didn't say it was reasonable, but didn't say it was totally off. Does anyone have clients who are using the rates for this purpose?

[Andy the Actuary]

Yes, I, all of them.

[Guest Jeff Hartmann]

In my opinion, it is quite "reasonable" to use MAP-21 interest rates for the 110% test, since those rates are being used for AFTAP's.

All of our 110% calcs use MAP-21 rates.

[SoCalActuary]

I agree. We are not required to have 110% of the lump sum liquidation value before paying an HCE.