Limitations on Accelerated Benefit Distributions

[YankeeFan]

An employer sponsor's a frozen defined benefit plan which allows payment of lump sum distributions as an optional form. The benefit accruals under the plan were frozen prior to 2005. In accordance with 436(d)(4), it appears that the limitations on the payment of lump distributions do not apply. Can someone please confirm this and point out any other issues that should be considered.

Lets assume the 2007 AFTAP is 75%. Do you agree that since the plan benefits were frozen prior to 2005, lump sum benefits may be paid in full for the entire 2008 plan year regardless of the 2007 and 2008 AFTAP.

In this case, does the 2007 AFTAP even need to be certified prior to April 1, 2008 in order to avoid a limitation on the payment of lump sum distributions? Furthermore, assume the 2008 AFTAP is not certified prior to October 1, 2008. Would the failure to certify to the 2008 AFTAP prior to October 1, 2008 create a limitation on the payment of lump sum distributions?

[Guest KennyH]

The 436 limitation on accelerated benefit payments does not apply if the plan was frozen prior to 9/1/2005.

[YankeeFan]

Not that I'm doubting KennyH's assessment but does everyone else agree as well?

[Andy the Actuary]

The August 31, 2007 proposed regulations provide "4. Exception for certain frozen plans. In accordance with section 436(d)(4),

the limitations under section 436(d) will not apply to a plan for any plan year if the terms of the plan, as in effect for the period beginning on September 1, 2005, provided for no benefit accruals with respect to any participants."

This indicates that whether or not a certification is made -- timely or otherwise -- benefit distributions (except to certain HCEs) would not be restricted. Note, the exception does not appear to apply to 436(b), ©, or (e). I believe the question you are trying to answer is "If I make no certification, may the client sue and claim my first born and will the IRS summarily sentence me to developing commutation columns by hand in pension prision?" If the only question is benefits restriction, I do not see where there is any requirement or advantage to certifying the AFTAP.

[Lori Friedman]

I'd like to say that I won't even try to help anyone named "YankeeFan".

[SoCalActuary]

I'd like to say that I won't even try to help anyone named "YankeeFan".

So she Spits her reply at the New Yorker, since we are talking regional issues here.