Plan obligations on 2009 Lump Sum Restrictions

[Guest DBPension]

What (if any) are the Plan's obligations in these circumstances (assume 2008 AFTAP>100% and 2009 AFTAP will ultimately be between 60 & 80% when calculated sometime before 10/01/09 but has not yet been done):

(1) Participant has 100% lump sum quote in hand from Plan administration (given to him in early April 09), on 4/10 puts in ALL paperwork to retire with 5/31 as last day of employment & with 6/01 as lump sum payout date. Meanwhile, Plan Actuary certifies on 5/20 that 2009 AFTAP is 70%, and no required notification has gone out. Note that the 30-day notification period ends AFTER the requested payout date. "Can", "Should", "Must" the plan give tha participant the requested 100% lump sum.

(2) Would your answer to (1) above differ if participant's submission-timing is the same, but the Certification was completed on 4/25 with notification sent out on 5/20 (this date being BEFORE the requested payout date).

(3) Now to complicate things ....... how about if the Plan gave the participant an unqualified lump sum quote AFTER the Actuary had certified and told plan administration of a 70% 2009 AFTAP but BEFORE a notice went out.

I'm guessing the answer to ALL OF THE ABOVE is that the plan CANNOT payout a 100% lump sum, but some of these situations will certainly lead to litigation & some really bad press

[Andy the Actuary]

What (if any) are the Plan's obligations in these circumstances (assume 2008 AFTAP>100% and 2009 AFTAP will ultimately be between 60 & 80% when calculated sometime before 10/01/09 but has not yet been done):

(1) Participant has 100% lump sum quote in hand from Plan administration (given to him in early April 09), on 4/10 puts in ALL paperwork to retire with 5/31 as last day of employment & with 6/01 as lump sum payout date. Meanwhile, Plan Actuary certifies on 5/20 that 2009 AFTAP is 70%, and no required notification has gone out. Note that the 30-day notification period ends AFTER the requested payout date. "Can", "Should", "Must" the plan give tha participant the requested 100% lump sum.What was 2008 AFTAP? Presumption applies as of 4/1/2009, so if 2008 AFTAP>=90%, then may be okay provide no AFTAP is issued. If less than 90%, then presumed restrictions apply and notice is in default. Penalty is up to $1,000/day/participant for each participant to whom notice should have been provided. Further, to violate 436 and distribute 100% is a plan qualification issue.

(2) Would your answer to (1) above differ if participant's submission-timing is the same, but the Certification was completed on 4/25 with notification sent out on 5/20 (this date being BEFORE the requested payout date).Yes, I would have offered the opinion in blue ink.

(3) Now to complicate things ....... how about if the Plan gave the participant an unqualified lump sum quote AFTER the Actuary had certified and told plan administration of a 70% 2009 AFTAP but BEFORE a notice went out. Where did the "unqualifed" lump sum calculation come from?

I'm guessing the answer to ALL OF THE ABOVE is that the plan CANNOT payout a 100% lump sum, but some of these situations will certainly lead to litigation & some really bad press

Suggest culpable parties seek legal counsel.

[Guest DBPension]

Andy .......

Gotta watch my terminology .. in #(2) I'm not addressing a late notice situation, but simply the situation where a participant (via a plan quotation) is told he CAN get a full lump sum, but very shortly BEFORE he receives it, the actuary certifies to a 2009 AFTAP that is below 80% and supposedly he should'nt get it ..... "can"/"should" the Plan give the full lump sum to him anyway because he WAS TOLD he would get it (and his paperwork was submitted BEFORE the actuary's certification)? Is the Plan it violation of 436 if they do so?

Later, when I said "unqualified" I didn't mean it in the context of "qualified" vs "non-qualified". All I meant was that he was told "without any reservations" that he could get a lump sum ... supposedly having been told so in error because the plan had ALREADY been notified of a 2009 AFTAP that would restrict the lump sum to 50%.

Hope this clarifies my original questions .....

[Andy the Actuary]

Ohhhhhhh.

It's fess up time. I missed your assumption that the 2008 AFTAP is > 100%. The presumption effective 4/1/2009 is 90% and there are no restrictions on distributing lump sums to NHCES until the earlier of 10/1/2009 or the date an AFTAP of less than 80% is issued.

So, if your facts are correct, the PA should instruct the EA not to issue the 2009 AFTAP until the PA advises. Second, assuming the Plan wants to distribute unrestricted lump sums as long as possible, the PA should instruct the EA to issue the certification as of 9/30/2009.

Under these circumstances, there is no problem.

In any event, you can't advise the PA to disqualify the Plan after a <70% certification has been made just because the PA gave out erroneous information. Then, about the only option that ensures the avoidance of attornies and bad press is for the Plan Sponsor to make additional contributions to get the AFTAP to 80% and then the EA can reissue the AFTAP.

Not truly knowing the facts and circumstances of your example, if the EA has already issued the AFTAP and it was done without the instruction of the PA, it's possible the PA could demand the EA to retract the AFTAP. I say possible because this is a legal question.