Employer Late on Distribution

[Dougsbpc]

A small DB plan participant terminates employment October 31, 2005. He requests a lump sum distribution to be paid on April 30, 2006 (a Sunday). The employer agrees to this in writing. The participant completes all benefit elections and provides them to the administrator by April 10, 2006. The administrator provides a letter of instruction for the trustee to make the distribution. However, the trustee does not make the distribution until May 8, 2006.

This is only a delay of a week and does not seem like a problem. However, the lump sum benefit (per the document) is based on the 417(e) rate for the month prior to the distribution. If the distribution would have been made by April 30, 2006 it would have been based on 4.73% not 5.06%. The administrator recalculated the benefit based on 5.06% before the distribution was made.

Is the trustee in trouble for this slight delay in making the distribution?

Thanks much.

[SoCalActuary]

Did the plan administrator illustrate a lump sum for April payment? If so, the plan is probably cheating the participant to pay on the cheaper May rate. They should have paid on the earlier rates, but I question whether anyone will force them.