Lump sum methodology

[Guest lerieleech]

We have a difference of opinion, so I am throwing this one out to you all.

The plan (calendar year) terminated on 12/31/07. Distribution is to occur in 2008.

Nothing particularly unusual about the lump sum provision; the minimum lump sum as defined in the document is calculated using the applicable interest rate as of December, and GAR mortality.

Upon distribution of benefits in 2008 in accordance with the plan term, do we stick with the old basis, or do we use the new three-tiered interest rate and new mortality?

[Andy the Actuary]

The PBGC said stick with the old basis. I'm in the same situation and the attorney says he fears the IRS will not issue a d-letter unless you include new basis language (as well). So, for those weak at heart, provide the greater of the two, which in 2008, except for possibly older ages, would mean that the old basis prevails.

[Guest Steve C]

I, too, wonder about the IRS position on this. The PBGC stance came out in Tech Update 07-3: http://www.pbgc.gov/practitioners/law-regu...nt/tu16272.html

[mwyatt]

PBGC works in odd ways sometimes. I remember a plan that terminated in the TRA '86 restatement period in 1993. Prior doc had PBGC rates floating monthly, while the GUST restatement had them fixed for the plan year. PBGC on audit (there were other problems - a takeover case) stated that we had to use the monthly rates instead of fixed for the year rate. Nonsensical thing was that participants in this situation would have received higher lump sums under the fixed rate scenario rather than the rate at distribution. Oh well...

Is PBGC mandating 417 calced using 30-year rates and the 94GAR (RP 2001-62) table for these calcs. Not inconceivable given the improved 2008 mortality table and dampening of impact of 3 tiered rates, that PPA would provide a higher lump sum.

[david rigby]

... and what do you do if the plan is not covered by the PBGC?

[AndyH]

Dunno about non - PBGC plans but their position on 2007 terminations was confirmed in propaganda dated 12/3/07 titled "Technical Update 07-3". The following curious caviat was included however:

"IV. Disclaimer

This guidance represents PBGC’s current thinking on this topic. It does not create or confer any rights for or on any person or operate to bind the public. If an alternative approach satisfies the requirements of the applicable statutes and regulations, you can use that approach. If you want to discuss an alternative approach (you are not required to do so), you may contact the PBGC. "

[ak2ary]

IRS has publicly stated several times that a plan with a 2007 termination date is not subject to the PPA interest rate rules because the rules are effective after the plan's termination date. Thus, the IRS and PBGC are together on this one....(We'll see what happens for 2008/9 when you are supposed to get another year of phase-in)

[Andy the Actuary]

Mr. Act2ary, do you have any printed citation of?

"IRS has publicly stated several times that a plan with a 2007 termination date is not subject to the PPA interest rate rules because the rules are effective after the plan's termination date."

[Mike Preston]

That has always been their position.