Change in Interest Rate Used for Calculating Single-Sum Equivalents in

[Guest jhengle]

Soon after a merger our positions were eliminated. Before we left the Lump Sum benefit accural were changed. This change lowered the Lump Sum benefits by 18%. I feel we should have received a notice of change. We were told before the merger we would receive the best of the two plans. Where can I find information on this?

[Dave Baker]

Sounds like your plan might have been amended to use the "GATT" interest rates, authorized in a piece of legislation called the General Agreement on Tariff and Trade. It's one of the few times the government has expressly allowed benefits to be cut back, by changing the interest assumptions ("discount rate") to be used in converting a promised stream of monthly payments at retirement age to a single-sum equivalent in present value. Have you been told anything to that effect?

[Dawn Hafner]

Dave, I am not sure on this, but is the 204(h) notice required if the change in interest rates is only amended with relation to lump sums? See Reg 1.411(d)-6T Q-5, Example 2.

They give an exampe of a plan that was amended to modify the assumptions used to convert the annuity form of distribution to a single lump sum. Beacuse the amendment did not affect the annual benefit commencing at NRA, no 204(h) notice is required.

If a plan only adopted GATT rates for lump sum conversions then it would appear no notice is required.

[Guest jhengle]

We at no time received any type of notice in writing about our plan being merged and what the results would be. What are disclosure requirements? Are we entitled to notice of form 5310-A being filed?

Question? If our plan has a value of $900k before GATT assumptions are implemented, and $720k after, where did the 180K go???

[richard]

I suggest that you think of your pension the following way. You have earned a pension based on your employment to date of, let's say, $1,000 per month starting when you turn age 65. Your employer has offered you the ability to take a lump sum of X dollars instead of the monthly pension.

They have not changed your monthly pension -- you have still earned (based on your employment to date), and are entitled to, a pension of $1,000 per month starting at age 65. They cannot take that away from you.

They are still offering you the alternative of taking a lump sum instead of the $1,000 per month pension; however, they have reduced the amount of the lump sum. (As Dave Baker indicated, this is one of the few time the government has allows such a cutback.)

However, if you choose to take your pension as a monthly benefit, you are not affected by this cutback -- nothing has changed.

By the way, think of a true purpose of a pension plan as providing you with a monthly lifetime pension. I know that it is common for employees to be offered lump sums instead of their people (and employees like this because they would like to invest the money themselved), but THE PRIMARY PURPOSE OF A PENSION PLAN IS LIFETIME MONTHLY INCOME.

(OK, I'll get off my soapbox)