Pension Funding Equity Act re: Lump Sum payments

[dmb]

It is my understanding that this act does not change the 417e minimum lump sums. For example, if the plan's act eq is 5% and the 417e rate is 4.37%, the minimum lump sum would still be based on the 4.37%. My question is regarding maximum 415 lump sums. Would the 5.5% rate override the other rates for 415 or would the 417e lump sum take precedence since that would provide a larger lump sum than the 415 (if the participant's accreued benefit was at the 415 lmt.)?? Thanks.

[Mike Preston]

417 does not override 415. Never has. Doesn't now, either.

[JAY21]

The way that I understand it and would do the calc is 1st: calc and compare greater of present value using actuarial equivalence and 417(e) [if different}, then 2nd: Calc 415 limit as lesser of actuarial equivalence or using 5.5% for the lump sum value only (but not for annuity dollar limit calc if NRA less than 62). If the result from step 2 (lesser of act. equiv. or 5.5%) is less than step one (1) then "yes" your 415 limit is cutting off your otherwise payable present value based on (or at least considering) 417e rates. 415 "trumps" 417e.

Note that a recent ASPA ASAP "re-cap" mentioned that there is a "transitional rule" for 2004 that basically states that the above result cannot be less than the lump sum that would have been payable under the old law provisions using the interest rate in effect under the plan as of the last day of the 2003 plan year. Sounds like for 2004 there's this extra step to consider and no one will be any worse off for 2004 than they would have been under the old rules. 2005 doesn't appear to have this same transitional rule protection (i.e., fully-phased in at that point).