Interest on Retro Payments

[Guest lvegas]

Is there a new rule (perhaps as of 2/04) that if the payment of a DB plan benefit is deferred or delayed for some reason that the plan must pay interest on such payments for the period of deferral or delay? I have heard rumblings about this but can't find the guidance. Thanks.

[MGB]

It is in the "new" retroactive annuity starting date regulations under IRC 417. If a distribution is a retro-ASD, interest must be given. However, IRS representatives have stated recently (quite often) that any delay in payment (even non-retro-ASD) situations requires interest.

Many of us disagree with those "comments".

The latest is from the 2004 EA Meeting Gray Book (note issue (2)):

QUESTION 30

Retroactive ASD: Multiple QJSA Explanations

Assume a participant receives the explanation of the QJSA 85 days prior to the annuity starting date. The participant does not make an election as of the 3rd day prior to the annuity starting date and the plan administrator resends the explanation of the QJSA reflecting the original annuity starting date 2 days before that same annuity starting date. The participant makes an election 30 days after the annuity starting date and receives the first and second payments 45 days after the annuity starting date.

1) Can the second QJSA explanation be used for counting 90 days from providing notice to distribution?

2) Is the participant subject to the retroactive annuity starting date rules given that the QJSA explanation was provided before the annuity starting date?

3) Is it true that if the participant elected a lump sum payment, the lump sum present value as of the annuity starting date would be payable to the participant and would not need to be compared to the lump sum as of the distribution date?

RESPONSE

1) Yes. The second notice can be used to restart the 90-day requirement to distribute benefits when an election is made on or after the annuity starting date.

2) The participant is not subject to the retroactive annuity starting date rules, but that has no bearing on the requirement to provide interest because that’s a general requirement of the section 411 vesting rules.

3) Yes. The comparison of the lump sum as of the annuity starting date and a lump sum determined using the applicable interest rate and mortality as of the distribution date is not required because the participant is not subject to the retroactive annuity starting date requirements.

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