Notice of Plan Benefits

[Just Me]

We have a defined benefit plan that is terminating and we are putting together the Notice of Plan Benefits. Can we advise participants that their choice will be between a lump sum and an annuity to begin paying monthly as soon as the plan termination is approved, or do we have to offer them an annuity payable beginning at their retirement date, too?

Thanks.

[ishi]

See 1.417(e)-1(b)(1). An immediate J&S option must be provided for married participants. I also believe an immediate life only option must be given to single participants.

[JanetM]

In my experience you offer either a lump sum or to purchase an annuity. The annuity can start now or at a later date.

[Blinky the 3-eyed Fish]

In answer to your question, you too have to offer an annuity payable at NRA. A DB plan's termination is not a means to violate 411(d)(6). Of course with a lump sum offered I can safely predict how many people will choose any form of annuity.

[david rigby]

To elaborate/consolidate above answers, you have to offer what the plan says, which is to provide the accrued benefit as defined in the plan. To do so would probably require that the plan purchase a (fully-paid) deferred annuity, which begins at the NRD and with all the plan's relevant provisions (early retirement, optional forms, QPSA, etc.). Most documents will also include a lump sum option upon plan termination, but it is not required. The reference to 417 above is to note the additional regulatory requirement that the offer of a lump sum must also include an immediate annuity as an option.

On a practical note, you will not find an insurance company willing to sell a deferred annuity on an individual basis. Therefore, any EE who chooses the deferred annuity option may have to be given the equivalent immeidate annuity. As Blinky implies, this choice is unlikely, but I have seen it happen.

[WDIK]

On a practical note, you will not find an insurance company willing to sell a deferred annuity on an individual basis.

pax:

Perhaps I misunderstand your comment, but I am aware of several sources for terminal funding contracts. We used one a number of years ago to provide a deferred benefit for the only participant of a defined benefit pension plan (out of about 150) that elected that option.

[Effen]

I think the PBGC directions are fairly clear that you need to illustrate both annuities commencing immediately (assuming lump sums are offered) and annuities commencing at NRD. And any other day that might be relevant. And speaking of relevant.... the new relative value regs may cause a lot more people to take the annuity, especially if there are any subsidized early retirement benefits not being included in the lump sum.

[david rigby]

WDIK,

OK, but I am surprised. My experience was that no company wanted to sell one deferred annuity, although perhaps there was a minimum size in their requirements. In your situation, was the purchased annuity large (by whatever standards) or with a short deferral period?

[WDIK]

If memory serves, the annuity purchased was to provide a monthly benefit between $150 and $200 to commence within 5 or 6 years. I think the purchase was made during 1999 or 2000.

P.S. The annuity cost was about $2,000 more than the lump sum payment would have been.

[Guest dsyrett]

The type of annuity here is a specialized annuity, generally not your garden variety deferred or immediate annuity. A terminal funding outfit would be my choice to shop for one of these since they can do some of the due diligence work that one would want to do (ie., you don't necessarily want to buy from the carrier with the lowest price a la the old Executive Life fiasco). The terminal funding firms tend to be on top of the marketplace, know what information they want and can provide single premium quotes on a number of blue chip carriers.