Effen

I suggest you ask an ERISA lawyer those types of legal questions.

I agree that different assumptions will produce different answers, but to say "lump sum payments are most often less than the actuarially determined present value of a future stream of income", is just wrong. The lump sum IS the present value of the future payment, but they are based on a specific set of assumptions, including mortality expectations. Changing the assumptions produces a different answer, but that doesn't make one answer wrong and the other one right. It's just math. I think we are done here. Thank you for the comments.

When actuaries speak of "derisking", we are talking about shifting risk from the plan sponsor to someone else. Yes, a lump sum window is a form of derisking where the risk is shifted to the participant. Annuity purchases are also a form of derisking because the risk is shifted from the plan sponsor to the insurance company. The economics of derisking are part of the analysis. Most large plans derisk when interest rates are higher because the value of the liability is lower, and they can often derisk without any financial impact on their accounting. Plans that are paying maximum PBGC premiums derisk to save PBGC premiums. When you are paying $750+/person in PBGC premiums, the administrative cost associated with a lump sum window or annuity purchase is usually less than the savings in year 1 with the reduced participant count. IOW, there are many reasons for plans to derisk. I would argue that statement is not true. The lump sum is exactly the present value of a future stream of income. That is how it is determined. 417(e) provides the minimum lump sum permitted based on current unisex mortality and relatively current interest rates. You could argue is it under-paying females and over-paying males, but Congress doesn't let plans sex distinct mortality for lump sum. (You can for annuity purchases.) If interest rates are equal, than I agree the annuity purchase is generally higher than the lump sum, but that is related to expense loads changed by the carrier for future administration. If a plan is using 417(e) rates, those rates must be updated at least annually, but they can be updated more frequently. Annuity purchases are based on rates in effect at the time of purchase. Therefore, there is often a disconnect that causes lump sums to be more / less favorable than annuities depending on interest rates at the time of purchase.

Maybe, but that isn't what we are talking about. The only way for that statement to happen, if for the existing spouse to sign off. As David, and Bri, and I stated, the OP was asking about purchasing an annuity during the plan termination process. When the plan is purchasing an annuity under this situation, or in a derisking move that doesn't involve a plan termination, the annuity purchased must provide all the same rights and features of the plan document. Therefore, the annuity purchase is not a distribution to the participant. The participant is not involved in the purchase. If the LS was a permanent feature of the plan, the annuity purchase would still need to provide that option in the future, as well as any other optional form of payment in the plan document. Once the participant reached an age they were eligible to receive the benefit, the spousal consent rules would still apply in order for them to receive the benefit from the ins. company. If the participant can get spousal consent at a future date, or if they no longer has a spouse, then they can take a lump sum later. If he still has a spouse, and they don't consent to a non-spousal option, his only option would be the QJSA/QOSA options in the plan. If you need a site, read REA from 1984. Not responding to the rest of your comments as you are hanging a picture in the wrong gallery.

spousal consent is not required for an annuity purchase.

There are brokers who can help - I will PM you. You can also go direct to the carriers. Did you try Midland and/or Mutual of Omaha? They will usually quote. I will send you a few options via PM for brokers who might be able to help.

See

A few comments: "I agree it would just be a way to see their account online and would only change annually." There are designs and administrative products/structures that allow for "daily valued" account balance information. Mostly used in larger plan markets - 50+, but can be used for any size if desired. "And an investment manager could allocate among the funds offered." Not exactly sure what you are referring to with this comment, but typically there is only one trust. You can have a daily valued defined benefit plan, but it would be very difficult to allow individual investment direction. (Not saying theoretically impossible, but practically impossible.)

There are market based cash balance plans and variable investment plans that can be daily record kept like a DC plan. Participants can log in to a website and see their the value of their account at any time. The design can be cost prohibitive for smaller groups, but for larger groups, or HCE only designs, they work very well. My firm specialize in the variable design. This is not technically a "cash balance" plan, but relies on a different section of the IRC. There are some problems with market based cash balance - especially around NDT, which is why we prefer the variable design. PM me is you would like additional information.

You should talk to your ERISA attorney. They can quantify the risks involved. Keep in mind there is no requirement to submit the plan termination to the IRS for approval, and those sound like very minor amendments.

It's a little late now to have that conversation. I think they are stuck with 2025 MRC. May have time to reduce 2026 if they haven't already worked another 1000 hours. Can freeze it prospectively so post 8/1/26 comp doesn't count. If they can't make all of the 2025 MRC, and you can reduce the 2026 MRC, maybe they can spread cash payments out over over a few years and minimize excise taxes.

No. If the participant met the requirements to accrue that year's benefit, then it cannot be taken away. What are the requirements for an accrual? 1 hour? 500 hours? 1000 hours? elapsed time? Might it be possible that the participant did not meet whatever requirements are in place for earning the accrual? What are you actually trying to accomplish? Are you trying to reduce the 2025 MRC?

Lowering AE to 2% for lump sums simply raises the "value" of the benefit. It does not impact the maximum lump sum which is still restricted by 415 limits. The 417(e) rates are just the statutory minimum basis. You can always pay more if you want, as long as you don't exceed the 415 maximum. You could also just raise the accrued benefit for the same effect. Really no point to do it in an "owner only" plan as their ultimate benefit is restricted to the amount of assets in the plan. You really only need to monitor the 415 maximum and insure the assets stay under that amount. If the value of the assets exceed 415 maximum, lowering the AE to 2% won't help.

When you say, "met the audit requirement threshold", do you mean is had > 100 participants and required an audit, or it did not require an audit? Can you provide additional information? How many participants are in the floor offset plan? How many of those have cash balance accounts? What is the type of business? There is nothing special about a floor offset plan that would exempt it from PBGC coverage, but some take the position that only those with cash balance accounts are actually participants.

Micks - Thank you for your participation on the board. Always nice to see new contributors. However, I created a new topic with your most recent post. Please don't start new topics on old threads. It makes it very difficult to search in the future.