Interest Rates for Lump Sum Distributions

[12AX7]

After an absence of working with DB plans I'm now starting to learn again about these plans and need to know if I'm on the right track regarding interest rates for Lum Sum Distributions.

When calculating an LSD that is below the 415 maximum (prior to the PPA of 2006), the interest rate stated in the plan must be compared to the applicable GATT rate and the lower of the two rates would apply. So for example, if the plan rate is 5% and the the applicable GATT rate is 4.68%, then the payout is based on 4.68%.

When calculating the maximum 415 benefit (again prior to the PPA of 2006), a flat rate of 5.5% is used if the plan rate is below 5.5% for the 2004-5 years. This rate would not apply for benefits below the 415 maximum.

I know that the PPA of 2006 will change how these distributions are calculated and extend the PFEA rules with modifications, but I wish to know if I have missed anything with regard to the calculation (prior to the PPA of 2006). Thanks.

[mwyatt]

The minimum lump sum is also coupled with the 1994 GAR table (IR RP 2001-62), so your comparison is the lump sum using your specified AE assumptions v. the applicable 30-year UST rate and the 1994 GAR table. Differs in that the pre-GATT calcs used your AE mortality and the PBGC interest assumptions for minimum lump sum purposes.