Final regs under 417(a)(3)

[Belgarath]

Issued yesterday, by the way.

Of all the stuff I discuss with colleagues in the business, this is the one where I find the fewest clearcut, confident opinions. Understandable, because even the actuaries I've talked to find this a struggle, so for us poor saps who are not so mathematically inclined, it's worse yet.

Here's a question that we've been kicking around, that I'll toss out for discussion.

Suppose you have a plain vanilla DB plan. No subsidized benefits whatsoever, and all distribution options are actuarially equivalent. And the lump sum using plan assumptions is, say, $100,000. However, due to 417(e)(3), the lump sum actually payable is $120,000.

For purposes of the regulation only, is this considered "approximately equal" to the QJSA?

On my untutored level, it would seem that this should be disclosed as being 120% of the QJSA. But is that what is required by the regs? Let's say you are using the general disclosure method, with a "chart" that shows the lump sum based upon plan assumptions, and the chart shows, (accurately) that based upon the plan assumptions (which are stated on the chart) that the lump sum is equal to all the other forms of benefit. But there's also an asterisk that says the actual lump sum may be higher depending upon interest rates - would this satisfy the disclosure requirements? Or must there be a specific statement somewhere that the lump sum available under 417(e)(3) is relatively worth 120% of the other benefits? (P.S. the employee benefit statement for a terminated participant that shows a lump sum distribution amount shows the actual, higher, 417(e)(3) lump sum.)

It seems to me that the final regs give a corridor of 95% to 105%, and anything outside of this cannot be considered approximately equal to the QJSA.

1. Do you agree that I'm reading this correctly and that this would apply to a lump sum under 417(e)(3)?

2. Am I correct in general, but the 417(e)(3) doesn't fall under this requirement?

3. Am I wrong altogether?

4. If # 1 is correct, then is the general disclosure I outlined acceptable, or must it be more explicit?

Thanks in advance - our actuary is going to be discussing this garbage with cohorts at some conference in June, I believe, but I'm just trying to get a handle on it in the meantime for my own edification.