Lump Sums

[Gary]

A plan uses age nearest birthday as of 1/1 to compute a lump sum in a given calendar year.

For eg. if someone were born 8/1/50 and received a lump sum on 8/1/2003, the plan would use an age of 52, since that was the age nearest birthday at 1/1/03. And since the lump sum is the pv of a deferred to age 65 annuity the lump sum is thus less than if they used his exact age of 53 at the time of distribution.

Does anyone have any thoughts on this method? And know of any cites addressing such an issue? The Plan is in effect paying a lower lump sum than it appears they should in many situations (about half the time).

Thanks.

[SRM]

Does the Plan Document specifically indicate that lump sums are calculated based upon nearest age as of 1/1?

A client (terminated plan) was recently audited by PBGC and requested the recalculation of lump sums based upon nearest age at the date the lump sum was paid. The client was requested to pay additional amounts plus interest on these lump sums.

The Plan had originally paid all lump sums based upon PVABs calculated at 1/1 using nearest age.

The Plan Document defined age as nearest age.

The PBGC cited:

1. PBGC Reg §4041.28©(2) - lump sums calculated as of annuity starting date.

2. IRC §417(f)(2)(A) and §1.401(a)-20 Q & A 10 - annuity starting date is day lump sum is paid.