Employee Contributions in DB Plan & Immediate Annuity < ERD

[Guest SuzieQNEC]

Defined Benefit Plan has employee contributions. My recent understanding is that if a plan allows any type of lump sum payment, it must also allow for an immediate annuity. I'm unclear however how to apply this to a DB plan where part of the accrued benefit is related to employee contributions. The plan does not normally allow for lump sum payments other than employee contributions with interest to terminated participants.

So my question is, in offering the participant the current value of their employee contributions, do we also offer them an immediate annuity which would be the actuarial equivalent of just the accrued benefit related to the employee contributions, or rather an immediate annuity of the full benefit, with or without the portion related to employee contributions.

Example of immediate annuities to a 40 year old:

eecwi portion: 15.00

ee&er portion: 75.00

lump sum taken & er portion: $65.00

Thank you.

[david rigby]

This is the important fact:

The plan does not normally allow for lump sum payments other than employee contributions with interest to terminated participants.

It would seem you offer (a) an annuity of 75, or (b) the EECWI (which by definition is a lump sum), plus an annuity of 65.

[Guest SuzieQNEC]

Thank you for the reply. To make sure I understand, they actually have three choices then at this time:

1. Take only eecwi (& thus defer er portion of retirement benefit until eligible for retirement)

2. Take eecwi & an immediate annuity of er portion

3. No lump sum but take immediate annuity of entire benefit

[Guest SuzieQNEC]

I'm still not really clear on the options offered the employee. From the response it appears they would take an immediate annuity along with the lump sum of eecwi. Is it possible for them to just take eecwi and wait till retirement age for the rest of the benefit?

[eeyore]

Could this be a governemental plan? OP's statement that "plan does not normally allow for lump sum payments other than employee contributions with interest to terminated participants" makes that seem likely, IMO. If it is governmental, then of course the requirement to offer an immediate annuity does not apply.

[Guest SuzieQNEC]

No it's not a government plan, unfortunately.