Death Benefit under QPSA after plan termination

[Guest BDZ]

A DB plan is in the process of being terminated (don't sound so shocked). Active and Vested Deferred Participants will be given the option to receive their benefit as a single sum distribution upon the approval of the IRS and PBGC. We typically provide the appropriate notice and election forms to the participants after the IRS does an intial inquiry, provided that the information requested is minimal. We typically do this to speed up the liquidation process, particularly if it is possible to liquidate the plan by year end.

The death benefit in the Plan is merely the QPSA.

If a participant dies while the plan is being reviewed (or prior to them making an election), it is my understanding that the QPSA would apply so that no benefit would be paid if the participant is single.

The question was raised on what benefit would be paid if the participant dies after making an election to receive a single sum distribution (QPSA or full accrued benefit without cutdown for QPSA)? Would it matter if the plan has received a fdl but was merely waiting to receive a bulk of the election forms?

This may be a reason to postpone the sending of notice and election forms until after the approval process is completed.

Please let me know if there is official guidance that I am not finding on these matters. Thank you very much!

[JAY21]

I'm not sure the Favorable Determination Letter is the appropriate "line-in-the-sand" that determines all this. FDL are optional upon plan termination, not required, and I doubt there's language in the plan document that requires it or ties any distributions issues to it. In my opinion everything ties to the Election Form. If they die before they sign it they're under the normal QPSA rules. If they sign it and die afterwards then the beneficiaries get the lump sum regardless of the FDL status. I'd be interested if anyone thinks the term resolutions themselves accelerate anything, but since term resolutions can be revoked, I wouldn't think so.

[Guest BDZ]

The termination resolution states that benefits are to be paid after receipt of the IRS fdl and approval by the PBGC. Therefore, I am considering such approvals as my triggering event that permits distributions based on the benefits of each participant at such time. I could not find anything that supports the acceleration of protected benefits at the time of plan termination. However, if the resolution/amendment are not specific on when benefits are paid, it makes sense to me that the executed elections would enable the annuity start date and would therefore allow the beneficiary(ies) to receive the single sum equivalent of the entire accrued benefit.

[JAY21]

Then I'd probably hold off on the election forms so they're not be signed before the FDL is received, just to be safe and consistent with your interpretation and application of the term resolutions as being the ASD for determination of QPSA benefits.