RMDs, additional accruals and a term certain

[Guest erisamelissa]

Looking for some thoughts on my wacky problem -

Traditional defined benefit plan where the normal form of benefit for an unmarried participant is a life annuity with a 5 year term certain.

Active Participant turns 70 1/2 in 1990. Elected to have his RMD based on his life expectancy only without recalculation (all copacetic with the 1987 regulations). Begins receiving his benefits in the form of the life annuity with 5 year term certain. Participant continues to work and accrue additional benefits under the Plan, which essentially bump up his payments the following year. Participant dies in 2007 without ever retiring. (Plan did not give the option to stop receiving RMDs under SBJPA).

His child calls the plan asking what benefits might be payable to his estate.

My initial thought was that this participant's beneficiary is not entitled to anything because the participant died at least 5 years after payments began. One of the senior actuaries in my group thinks that each annual bump is in and of itself a new life annuity with 5 year term certain, and that the beneficiary is entitled to receive the remainder of the five year certain for the last five years. The plan document is silent (who would contemplate this?) A more senior actuary and attorney thinks that "something is payable" but is honestly too busy to back that up with anything further.

Has anyone ever seen this before?

Much obliged!

[SoCalActuary]

Yes. It is important that the 70 1/2 distribution paperwork be clear. Were the prior year payments under an election to have a 5 yr certain and life annuity? Or were they one year payments that were not an annuity election?

Assume for this discussion that the participant had a series of one-year elections.

Any new accruals would be subject to the 5 cc form, unless you have language that reduces future accruals by the actuarial equivalent of prior payments, in which case there probably are no future accruals.

All benefits earned more than 5 years ago would have expired by now. New accruals during the past five years would be phased in 5,4,3,2 and one year guaranteed payments.

[Guest erisamelissa]

Yes. It is important that the 70 1/2 distribution paperwork be clear. Were the prior year payments under an election to have a 5 yr certain and life annuity? Or were they one year payments that were not an annuity election?

Assume for this discussion that the participant had a series of one-year elections.

Any new accruals would be subject to the 5 cc form, unless you have language that reduces future accruals by the actuarial equivalent of prior payments, in which case there probably are no future accruals.

All benefits earned more than 5 years ago would have expired by now. New accruals during the past five years would be phased in 5,4,3,2 and one year guaranteed payments.

Thank you very much.