415 lump sums in 2009

[FAPInJax]

Someone mentioned that Technical Corrections now uses the new 417 mortality tables for 415 lump sums beginning in 2009.

I read where small employers may provide a fixed 5.5% interest rate (ignoring the 105% rule??) for maximum lump sums but did not see the above. Did I misread or overlook something?

[david rigby]

See section 122 of the Worker, Retiree, and Employer Recovery Act of 2008:

SEC. 122. MODIFICATION OF INTEREST RATE ASSUMPTION REQUIRED WITH RESPECT TO CERTAIN SMALL EMPLOYER PLANS.

(a) In General- Subparagraph (E) of section 415(b)(2) of the 1986 Code (relating to limitation on certain assumptions) is amended by adding at the end the following new clause:

`(vi) In the case of a plan maintained by an eligible employer (as defined in section 408(p)(2)©(i)), clause (ii) shall be applied without regard to subclause (II) thereof.'.

(b) Effective Date- The amendment made by this section shall apply to years beginning after December 31, 2008.

BTW, the reference to IRC 408 does not apply to all plans:

C) Definitions

For purposes of this subsection -

(i) Eligible employer

(I) In general

The term "eligible employer" means, with respect to any year, an employer which had no more than 100 employees who received at least $5,000 of compensation from the employer for the preceding year.

[FAPInJax]

Thank you for the cite. This cite only relates to the interest rate though.

Another source is telling me that the mortality table for earlier ages and lump sums changes in 2009 as well. I was under the impression that for retirement ages prior to 62 (for example) and lump sums that the mortality table to be used was still 1994 GAR (the other source indicated it was now going to the 2009 Applicable mortality table)

[david rigby]

It's possible (maybe likely) that I misunderstand your question.

1. Note the phrase "without regard to subclause (II)". Is this part of your original question?

2. I think the proper reference for the mortality table is IRS Notice 2008-85, issued 9/30/08, published in Federal Register 10/20/08. But check for yourself to make sure this applies to your question.

[eeyore]

Yes, the mortality table for Section 415 was changed by WRERA 2008. Here's a quote from the Joint Committee's report:

Interest Rate Assumption for Determination of Lump Sum Distributions

(Act sec. 302 and Code sec. 415(b)(2)(E))

The Act amended the interest and mortality table used in calculating the minimum value

of certain optional forms of benefit, such as lump sums. The provision clarifies that the mortality

table required to be used in calculating the minimum value of optional forms of benefit is also

used in adjusting benefits and limits for purposes of applying the Code section 415 limitation on

benefits that may be provided under a defined benefit plan. This clarification of the required

mortality table is effective for years beginning after December 31, 2008. However, a plan may

elect to use the new mortality table for years beginning after December 31, 2007, and before

January 1, 2009, or for any portion of such a year.