Restricted Distributions (AFTAP < 80%)

[JAY21]

I think the first 3 months of 2008 was a grace period where lump sum distributions could still occur despite AFTAP %. Then 4/1/08 for calendar year it depended on the 2007 AFTAP (using 2006 as proxy for EOY plans).

If a participant terminated say 2/15/08 but did NOT receive a lump sum by 4/1/08 are they now restricted from getting a lump sum (AFTAP is only 75%) until later AFTAP is higher ?

I'm thinking yes they are stuck with 50% for now, but participant has attorney arguing that since they terminated before the 4/1/08 restricted date they should be able to get a lump sum.

Thoughts ?

[rcline46]

Have the attorney issue a written legal opinion that the law which says distributions on or after April 1 are restricted is hogwash and that you may rely on his written opinion as defense against any challenges by the IRS.

[Andy the Actuary]

From August 2007 regulations, Funding percentage less than 60 percent.

"In accordance with section 436(d)(1), under the proposed regulations, a plan must provide that, if the plan’s AFTAP for a plan year is less than 60 percent, the plan will not pay any prohibited payment with an annuity starting date that is on or after the applicable section 436 measurement date"

The annuity start date is the first day of the first period for which a benefit is payable as an annuity. For benefits payable in any other form, it is the first day on which all events have occurred that entitle the participant to a benefit.

This would tend to suggest that if all the papers were signed say by March 15, 2008 and administrative delay causes the payment to be delayed to after April 1, that the lump sum could be payable.

Nonetheless, this is somewhat gray and as Mr. "Recline" urges, get a legal opinion.