Death Benefit

[nancy]

In a DB plan, if the death benefit is defined as the pvab must you pay at 417(e) rates or can you define the pvab for death benefit purposes as the actuarial equivalence?

[MGB]

You can define it any way you want. 417(e) only applies to the commutation of a benefit that is already applicable to the person (they do not have the annuity applicable to them with it then being cashed out - they only have the one-time amount coming to them). However, you ought to make sure the plan document is clear as to what applies in the calculation.

Where 417(e) does apply is under the QPSA (see 417(e)(1)). If not waived, the spouse has the right to a certain annuity benefit. The death benefit actually paid (once elected by the spouse) must not be less than the 417(e) valuation of the QPSA. If your QPSA is 100%, you could easily have this be a calculation that is larger than the PVAB under a different set of factors.

If the plan wants to have PVAB using some other actuarial equivalence as the controlling calculation, then the plan should be designed with the QPSA at something like 50%.

[AndyH]

MGB, are you saying that 417(e) applies only to part of a death benefit if the death benefit equals the PVAB and the full death benefit can be paid as a lump sum? (Provided that the document reads this way, of course)

Would it not also apply to a QJSA? And isn't a QJSA for an unmarried person a life annuity? Or am I reading too much into your comments?

[MGB]

AndyH,

Your first question: yes.

Your second question: I don't understand what you are asking. What does a QJSA have to do with a lump sum death benefit?

[AndyH]

Sorry, my bad. The second part of my question made no sense. Good thing my first vacation day of the year is tomorrow!