Optional Forms while Benefit Restrictions Apply

[Guest Actuary Bill]

Has anybody dealt with lump sum payments when the AFTAP falls between 60% and 80%? I believe the proposed regs require the Plan to allow the participant to take 50% as a lump sum and elect another optional form of payment for the remaining 50%. Additionally, the participant could elect to defer commencement and receive a lump sum for the full benefit once the restrictions are lifted.

Another option, that is allowed but not required, is the Plan can pay 50% as a lump sum now and allow the participant to defer commencement on the remaining 50% to a point where the restrictions are no longer in place, correct? Are plan sponsors allowing this option?

[Andy the Actuary]

You indicated that the third option is allowed but not required. Would appreciate if you have some wording to support this because the attornies I've worked with are taking the position that the third option would be required.

In any event, employers are allowing the option with the communication that it is possible the restrictions may never be lifted so when the partiicpant reaches the latest age the Plan allows the distribution to be deferred to, the pension would start as a monthly. Ditto for deferring the entire enchilada -- the participant may be giving up his/her opportunity to take any portion of the benefit in a lump sum.

[Guest Actuary Bill]

You indicated that the third option is allowed but not required. Would appreciate if you have some wording to support this because the attornies I've worked with are taking the position that the third option would be required.

In any event, employers are allowing the option with the communication that it is possible the restrictions may never be lifted so when the partiicpant reaches the latest age the Plan allows the distribution to be deferred to, the pension would start as a monthly. Ditto for deferring the entire enchilada -- the participant may be giving up his/her opportunity to take any portion of the benefit in a lump sum.

Thanks for your thoughts, Andy.

I was looking at the following section of the proposed regs, "A plan is also permitted (but not required) to offer optional forms of benefit that are solely available during the period section 436(d)(3) applies to the plan, such as an optional form of benefit that provides for the current payment of the unrestricted portion of the benefit, with a delayed commencement for the restricted portion of the benefit, subject to other applicable qualification requirements."

Previously in the reg, it outlines the delayed commencement date (seemingly for the entire benefit) and the bifurcation of the benefit so this is how I ended up at my original stance. I am just getting into this so I have not yet discussed it with our attorney.

[Andy the Actuary]

"If the participant elects to bifurcate the benefit, the plan must permit the participant to elect, with respect to the

unrestricted portion, any optional form of benefit otherwise available under the plan with respect to the participant’s

entire benefit." Assuming the participant is under NRA, I took this to mean the participant could receive a lump sum of the non-restricted portion and defer commencement of the restricted portion.