PPA Valuations Assuming Lump Sum

[Blinky the 3-eyed Fish]

I am curious how others are doing the calculations when the assumed payout is a lump sum.

415 benefit limit BOY = 18,500

415 lump sum limit BOY = 165,000

Plan benefit (w/o limiting to 415) = 19,500

Plan benefit lump sum (again w/o limiting benefit to 415) = 168,000

Plan benefit lump sum (if first limiting benefit to 415 of 18,500) = 159,400

So the question is would you limit the benefit to the 415 benefit limit and then take the lump sum value of that and compare it to the 415 lump sum (i.e. 159,400 vs. 165,000 = 159,400)?

Or would you just compare lump sum limits (i.e. 168,000 vs. 165,000 = 165,000)?

[Mike Preston]

I think you have to use the $165,000. Otherwise you have assumed a benefit that is, shall we say, "wrong"? Strong letter to follow.

I think it depends on your assumptions. If you are assuming that an individual is 100% likely to take a lump sum and the lump sum payable from the plan is $165,000 (no matter how one gets there), then your valuation needs to reflect that.