415 LS & PFEA Expired

[Penman2006]

I have a situation where a small business owner that has had a DB plan for a number of years and is now past NRA could maximize his LS distribution if he were to take it right now while PFEA is expired and prior to new regs, assuming the new regs make the 5.5% interest rate on 415 lump sums permanent. The plan would continue and the plan assets would just barely cover 110% of Current Liability (based on the Treasury rate CL interest rate corridor as applies since the expiration of the PFEA bond rate corridor, and prior to any pension reform legislation).

Being cautious, I am uneasy about having him take the distribution right now because of the black box of pending legislation. On the other hand, how can there be a problem if the distribution meets all of the applicable criteria based on the law in effect at the time of distribution?

I would appreciate any input and thoughts that will help me sort this out. Thanks.

[Dougsbpc]

Indeed, how can you have a problem if you meet all the applicable criteria based on current law. I cant imagine they would make any 415 rate changes retroactive. Chances are those changes will be effective for plan years beginning in 2007.

[david rigby]

Don't assume Congress won't make retroactive changes. Remember MPPAA (1980)?

Even if there are retroactive changes, there may be "grandfathering", but sometimes that is defined based, not on the date of passage of the law, but the date a particular provision is added to the draft legislation. Possibly, the plan sponsor will want advice from competent ERISA counsel.

[Blinky the 3-eyed Fish]

While I wasn't around for MPPAA, I can't fathom distributions not being grandfathered. To expect people to sit idle and wait for legislation that may never come has got to be the best defense ever should this ever be challenged.

[Penman2006]

Thanks very much.

[imchipbrown]

That's what my Actuary says; proposed is proposed. Follow the current law.