DB minimum distribution

[Tom Poje]

participant must start receiving 4/1

is that the actuarial equivalnce of whatever the benefit was as of that date

and if one chooses to make annual payments, is it simply 12 * the monthly amount, in which case the particpant would seem to come out ahead?

[Belgarath]

Tom, pardon my density (remember "Back to the Future", and the famous line, "You are my density")?

I'm not entirely sure what you are asking, so I'll take a stab. Under 1.401(a)(9)-6, Q&A-1©(1), "All benefit accruals as of the last day of the first distribution calendar year must be included in the calculation of the amount of annuity payments for payment intervals ending on or after the employee's required beginning date."

So I take this to mean that the monthly benefit accrued on 12-31-05 must be included when determining the RMD. And if the monthly benefit is 1,000, then yes, I believe you can simply multiply 1,000 by 12 and take 12,000 by 4-1-06. And 12,000 every year thereafter, plus increases if required for whatever reason - additional accruals, vesting, whatever...

Probably this isn't what you are asking at all.

[Tom Poje]

well actually you are probably close to answering what I want.

but I guess it would help to see numbers.

plan froze 1/1/05 so there sre no more increases.

to keep numbers simple.

ee has benefit of 1000 at 12/31/04

he turns age 70 1/2 by 12/31/05

so RMD is 4/1/06

how much should this be?

is it the actuarial increase at 4/1/06 because that is how much the $1000 at 12/31/04 is worth?

logically that would make sense to me as a monthly benefit?

but if taken as an annual benefit then do you adjust that figure to account for the fact he is actually taking the monthly figure as an annual lump sum earlier?

[Belgarath]

I don't know, so this is just conversation. Hopefully the DB wizards will chime in, 'cause I'm curious as to what the answer is.

To me, it seems like two separate issues. You have the plan issue, and the minimum distribution issue. And I think your question is more of a plan issue. I see nothing in the RMD regs which indicates that simply multiplying the monthly benefit by 12 and taking it annually is any problem. And maybe they (IRS) didn't even think of this.

The plan issue would appear to me to be a potential problem. As a non actuary, it seems like, as you said, the participant would be getting a better "deal" by taking the lifetime monthly benefit (at its higher actuarially increased value, if applicable, over the 1000 accrued as of the freeze date of 2004) as an annual payment. Seems like the present value of 12,000 in hand is higher than the present value of 1,000 per month for 12 months. So it would seem like this would have to be accounted for SOMEHOW - and maybe either the plan language or the actuary would make this adjustment up front so that the annual payment would only be 11,950 or whatever, rather than 12,000. Or perhaps they adjust it on the back end.

[Mike Preston]

You want an old law answer or a new law answer? [What is your anticipated implementation date of the new rules.] You want an answer consistent with the document or a general response? [What are the actuarial equivalence, suspension of benefit, and actuarial increase provisions?]

I have stayed out of all DB minimum discussions because the darn issue is a complex one that usually requires enough time to be billable.

And as we have more people beating on us for 3/15 and 4/15 calculations than we can shake a stick at, there just isn't time to do justice to the issue, in general.