Corrective Allocation and Distribution Requirements

[J. Bringhurst]

Client undercalculated lump sum distributions from its defined benefit plan. They have recalculated the accrued benefit (with an interest adjustment on the "make up" amount) but are not sure how to handle the cash out issue (e.g., if the prior lump sum paid in 2003 was $4,000 (and was cashed out) and the corrective allocation is $1,500, is the new amount subject to the automatic rollover rules or would it, in the aggregate with the prior lump sum, be considered to be in excess of $5,000). Just curious how others may be handling this as I don't see it specified in Rev. Proc. 2006-27.

[WDIK]

Although not directly on point because it is an older discussion, the following thread may offer some food for thought.

http://benefitslink.com/boards/index.php?showtopic=20053

[J. Bringhurst]

The link above takes me to a discussion on user group meetings...

[WDIK]

Sorry. The link has been corrected.

[Guest dsilver]

Client undercalculated lump sum distributions from its defined benefit plan. They have recalculated the accrued benefit (with an interest adjustment on the "make up" amount) but are not sure how to handle the cash out issue (e.g., if the prior lump sum paid in 2003 was $4,000 (and was cashed out) and the corrective allocation is $1,500, is the new amount subject to the automatic rollover rules or would it, in the aggregate with the prior lump sum, be considered to be in excess of $5,000). Just curious how others may be handling this as I don't see it specified in Rev. Proc. 2006-27.

Did you use one interest rate for the entire amount (and if so, was it a rate for the year in which the mistake was made, or the year of the distribution), or did you use a separate interest rate for each year? And what rate did you use--a money market rate?

[J. Bringhurst]

Client undercalculated lump sum distributions from its defined benefit plan. They have recalculated the accrued benefit (with an interest adjustment on the "make up" amount) but are not sure how to handle the cash out issue (e.g., if the prior lump sum paid in 2003 was $4,000 (and was cashed out) and the corrective allocation is $1,500, is the new amount subject to the automatic rollover rules or would it, in the aggregate with the prior lump sum, be considered to be in excess of $5,000). Just curious how others may be handling this as I don't see it specified in Rev. Proc. 2006-27.

Did you use one interest rate for the entire amount (and if so, was it a rate for the year in which the mistake was made, or the year of the distribution), or did you use a separate interest rate for each year? And what rate did you use--a money market rate?

I'm not entirely clear on the rate that was used for the make up amount. :-) My assignement in the project was only to check on the cash out rules.