PBGC lump sum, 411(d)(6)

[Gary]

A Plan amends lump sum provision from 100% PBGC rates to 120% PBGC rates (dist over 25k). Eff date of 7/22/96, adopted 9/12/97.

Say participant receives lump sum 9/1/96. S/ lump sum use 120% rates or 100% rates?

Say part. receives lump sum 10/1/97. S/ entire lump sum be based on 120% rates or s/ accd ben as of 7/22/96 be based on 100% rates and accrual after 7/22/96 be based on 120% of rates. That is, is there 411(d)(6) protection in this case?

Thanks,

Gary

[rcline46]

THe general rule on amending PBGC rates is you calc the benefit under both rates for 1 year after the later of adopt or eff date and pay the larger amount.

Your first example, pay at larger of 100% or 120%.

Second example, pay at 120% rate.

Also, if you were paying larger of Act Equiv or PBGC, final check is against Act Equiv for larger there also.

[Gary]

I thought that one year transition is related to amending plans to GATT and relates to 411(d)(6) w/r/t changing to GATT.

In any event I am also addressing the issue of eff date and adoption date as well as 411(d)(6) for this type of change.

[Guest Harry O]

There most definitely is section 411(d)(6) protection when you go from a 100% of the PBGC rate to 120%. I'm not sure that rcline46 has it right -- the one year period he refers to relates to cases where the employer changes the TIME for determining the interest rate. Here the employer changed the interest rate itself.

There are a number of ways to grandfather in this situation (e.g., wearaway, extended wearaway, etc.). The most common is to simply pay the employee the greater of (1) PV of accrued benefit at time of change using 100% PBGC rate, or (2) PV of accrued benefit at termination using 120% of the PBGC rate.

Your question didn't address what happens when the employer adopted GATT. There are special exceptions to the 411(d)(6) anti-cutback protection that apply to GATT. These exceptions do not apply when you go from 100% to 120% of the PBGC rate.

[Gary]

I think we have gotten off the subject. Please refer to my original question. It references GATT, but it does not have anything to do directly w/ Gatt. It has to do w/ applying an amendment based on one effective date and a much later adoption date, and w/ 411(d)(6) protection when going from 100% to 120% PBGC rates. I believe this change was afforded 411(d)(6) protection up to a certain point in time, such as thru 1989, but i dont know that it had this protection as late as 1996.

any thoughts?

[Guest Harry O]

See the first two paragraphs of my reply. There was some limited section 411(d)(6) relief that applied to plan amendments adopted before 1989. You seem to be a little outside that cutoff date.

[Gary]

OK Harry O I think we are on the same page now. I too feel that there is 411(d)(6) protection for this change.

The most common, I would think would be based on basing the lump sum of accd ben at time of change to 100% rates and any future accrual to 120% of rates.

A person terminates with a total accd ben and I would think that the entire ben must be applied to some assump. So I would think of AB as being preserved on a certain basis as opposed to just rpeserving the dollar amount you mention. what are your thoughts?

do you have any thoughts w/r/t the other part of my question related to eff date v adop date?

gary