Add interest up to date of payout?

[Guest Dave Peckham]

Has PPA clarified that interest MUST be added to a lump sum distribution from a plan's valuation date to the date of payout? Or can we still use the LS calculated as of the most recent valuation date? Say a DB plan with a one-year stability period for 417(e) terminates on 12/31/09 (which is a valuation date) and distributes on 5/31/2010. Can the lump sum payouts be the same as if the plan had distributed on 1/31/2010?

[Effen]

Lots of old threads on this old discussion, frankly I don’t know where this idea comes from. Nothing new in PPA because you were never permitted to use the value as of the last valuation date. You always had to determine the lump sum as of the date of payout. Anything less would be a violation of 411(d)(6) since the participant would be receiving less than the value of his accrued benefit.

Can you provide any evidence that you ever were permitted to pay a lump sum valued as of a date different than the annuity starting date?

[ScottR]

I agree with Effen. DB lump sums always had to be valued as of the distribution date.

You're probably thinking of the old DC balance forward plans, where payout was equal to account balance on last val date. That was okay. But not for DB's.

.. Scott

[Guest careful1]

In your example the 417(e) basis would chhange and require a recalcutaion of the 417(e) minimum LS but if the plan's AE assumptions created a lump sum greater than 417(e) and you were calculating lump sums based on age nearest birthday and someone was born in December then there age would not change and the lump sum could be the same, so for some person you could end up with that result but you can't just use the lump sum at the last val date as your "method", it's as of the annuity starting date.

[Guest Dave Peckham]

Effen, can you point me to some of those old threads? Thanks.

[Effen]

Effen, can you point me to some of those old threads? Thanks.

Interesting, I can't seem to find exactly what I was looking for, but here a two that might help.

old post

old post 1 - I don't really like the PBGC's response, but at least they are saying you must use rounded ages - according to the poster.

If you search "annuity starting date" you will find a lot of threads that dance around the issue. To me, I just don't see how you can argue that basing the lump sum on some date/age in the past doesn't violate 411(d)(6), when you are clearly paying someone less than the value of their accrued benefit.