jlf

How can non-spouse beneficiaries retain the tax-deferral of a lump-sum distribution made from a DB Plan?

After receiving retirement benefits for 8 years the annuitant is advised that there was an error in the original calculation. In order to correct this overpayment the pensioner was advised that commencing on 10-31-00 there will be a reduction of $743.13 per month for 26 months. This represents a reduction of 22% of the full amount of $3362.64 per month. Restoration to $3362.64 will resume on 12-31-02. Recognizing the length of time that has elapsed, can the Plan be enjoined from making the correction? Best wishes, Joel L. Frank

Under a QDRO a DB pensioner is required to share half of his pension with his former wife. Must he do this under a joint annuitant option where the cost is about 7%? Or can he request the Trustees to simply use the Single life option and then divide by 2? Each will, therefore, receive their own single life annuity without incurring the 7% cost.

Assume a non-contributory DB plan. Plan provides for a pre-retirement lump-sum death benefit equal to 3 times annual salary. Is this benefit life insurance proceeds and, therefore, not eligible for rollover treatment or is it a taxable distribution and, therefore, eligible for rollover treatment?

Can someone out there assist me? In NJ, for example, lump-sum death benefits are funded by group life insurance underwritten by the Prudential and paid for by the public employee pension fund and the employee. Such death benefits are not eligible for rollover treatment because they are life insurance proceeds. These amounts are in addition to a return of the participant's pension contributions. If these lump sum death benefits, however, are not labeled "life insurance proceeds" are they eligible for rollover treatment? Best wishes, Joel L. Frank

Let's assume the DB is $100,000, how is the $20,000 overage treated if one retires at age 55? Thanks

Under IRC 415, what is the maximum retirement benefit from a governmental DB plan starting at age 55?

Yes...the death benefit comes from an internally funded group life insurance plan. I am referring to the NYC Employees Retirement System. This lump-sum death benefit is in addition to a return of the participant's own contributions to the pension system. E.g. one month's salary for each full year of service up to a maximum of 3 years salary after 36 years of service. Some beneficiaries have paid income tax on this specific death benefit. If the death benefit comes from a group life insurance plan is it not income tax free? Best wishes, Joel L. Frank

Let's assume the death benefit is equal to 3 X annual salary for a death benefit of $180,000.00. Is this benefit taxable?

One can avoid the 10% penalty by taking substantially equal periodic payments that will last at least 5 years or until age 59.5 whichever is later. e.g. start at 55....no penalty tax if payments continue until age 60. Start at age 50....no penalty tax if payments continue until 59.5. Best wishes, Joel L. Frank

What is the Federal, State and local income tax consequence of a lump-sum death benefit from a DB governmental plan? Thanks, Joel L. Frank

Clarification: The City of New York administers 5 independent pension systems: 1. NYC Employees Retirement System 2. Teachers' Retirement System 3. Board of Education Retirement System 4. Police Pension Fund 5. Firefighters Pension Fund Best wishes, Joel L. Frank

Wait....the Senate is about to vote on the RSSA of 2000. If this bill becomes law you will be able to rollover your DC account to an IRA!!!! This would be just grand for you guys and gals. Best wishes, Joel L. Frank

The largest conversion of qualified plan money will be undertaken by the Florida Retirement System over the next 2 years. DB plan participants will be permitted to transfer the present value of their accrued DB pensions to an employee-directed investment account maintained by the new DC plan. All active public employees in the State are eligible to make the transfer if they so elect. An education seminar must be attended prior to making the election. New employees will likewise have a choice of plans. The sun really shines in the sunshine state!! I would like to hear your thoughts about this excting undertaking.

I am under the impression that for profits are precluded from sponsoring a 403b arrangement. Please clarify.

Hi "friendly actuary"...in your experience, how far removed from the $500,000 Reserve is the lump-sum distribution?

The $500,000 Reserve assumes a 7% interest rate factor. Does that help you in determining whether or not the Reserve equals the lump-sum settlement?

One is entitled, at age 60, to a DB of $50,000 per year for life. The Retirement System establishes a Reserve of $500,000 in order to guarantee this lifetime benefit. In the event that a lump-sum option is permitted is the $500,000 the lump-sum?

Both of you have confirmed my understanding of the law. Thank you kindly.

Are elective deferrals in the form of balloon payments permitted?

Hopefully, the Service will take a fresh look at their General Information Letter of May 19,1995 which states that an early distribution triggering event under 403(B)(7)(A)(ii) and/or 403(b)11 must first be satisfied before salary reduction amounts may be afforded rollover treatment under section 403(B)8. This Letter is troublesome in light of the Statutory elimination (PL 102-318) of the specified rollover triggering events under 403(B)8, the rollover provision of section 403(B). It appears from the Letter that the Service has made 403(B)(7)(A)(ii) and 403(B)(11) a rollover provision of section 403(B) in addition to an early distribution provision.

I believe the article is right on target. Let's have some additional reactions.

As part of a DB plan the participant is required to contribute 5% of pay to an invidual annuity account. The DB pension is funded solely from the employer's contributions and has nothing to do with the funding of the annuity account. At retirement the annuity account balance is subject to lifetime annuitization. Can this compulsory annuitization be successfully challenged in Court? ------------------ yes

Thanks Pax, I mis-read the column.

Greg, what caused the wage base to go down from $76,600 in 1999 to $76,200 in 2000? [This message has been edited by jlf (edited 05-30-2000).]