lump sum distribution

[Gary]

A plan provides a lump sum distribution based on gatt assumptions. However, if lump sum is less than 3,500, it provides a lump sum based on 6% and 71GAM for females, if it results in a larger lump sum.

If plan provides for this, would it not be required to provide lump sums over 3,500 on this basis as well?

Isn't this a 1.417(e)-1(d) requirement?

[david rigby]

Interesting.

I did not find anything in 1.417(e) that states or implies "every participant must have the same basis" for computing the lump sum actuarial equivalent.

However, this might come under the benefits, rights, and features of 1.401(a)(4). If the "greater of (a) or (B) approach" is used only where (a) is less than $3500, then it might not be an issue if it affects only NHCEs.

[Guest Keith N]

I think PAX is correct and it seems to me that this might be ok, depending on how they got there.

Lets say the plan never permitted lump sums of > 3,500 and that it used 71GAM 6% to determine the value of those. Participant's whose accrued benefits had a value > 3,500, never had the right to a lump sum.

Now lets amend the plan to permit everyone to be able to receive a lump sum. The 6% 71 GAM doesn't have to apply to those lump sums of > 3,500. This often comes up when a plan that didn't pay lump sums terminates and wants to pay them. It has to be amended to extend the lump sum rights to >3,500, but its not locked into a non-417(e) structure since it was never a right or feature.

I have worked on plans that this happened, and the IRS & PBGC had no problem with it (yes, they actually looked at it and said it was ok).