DB General Test

[Guest RSNOW]

I'd appreciate any comments as to whether you think there are any issues with designing a DB plan to not offer lump sums, in order to reduce or eliminate impact on general testing a Most Valuable Accrual Rate (MVAR) due to 417(e)/act. equiv., AND then in the 11th hour before plan termination adding a lump option which is never considered in any testing.

My concern is it seems a little too good to be true; to be able to avoid having to test 417(e)/actuarial equiv. lump sums in the MVAR for the entire life of the plan, and then just add the lump sum option at the end with no ramifications or impact on prior years testing.

I like the results though, and want to use that option (periodically) if available, but would appreciate any comments pro or con on this approach.

[Guest merlin]

Larry Deutsch suggested the same approach at the 2002 ASPA conference as a way around the 417/MVAR issue. But take a look at example 1 of 1.401(a))-5(a)(4) before proceeding.

[AndyH]

If I recall correctly he also floated the idea of allowing small lump sums only in a manner that only NHCEs might be eligible, for example, allowing lump sums only up to $20,000.

Then when the plan is terminated you amend and offer unrestricted lump sums.

This might work in some circumstances.

[Guest RSNOW]

Thanks for the replies and input. It is appreciated.