Valuations - Expected Form of Payment for HCEs

[JAY21]

I thought the Oct. 09 final regs addressed this but now I can't find a cite so maybe I'm wrong.

Does expected HCE restricted distributions play a role in whether the actuary can assume the expected form of payment will be an annuity vs. a lump sum ?

I have a plan that offers lump sums but about 50% of the benefits are for HCEs where the plan has never been well funded enough in its 30 years of existence, nor expected to be in the future, to pay out lump sums to the HCEs (this is an ongoing non-profit org plan that is not likely to terminate). There are no plans to increase funding levels.

Given this expectation of restricted HCE payments on the bulk of the benefits do the Regs allow an assumption that the form of payment will be an annuity (i.e., restricted series of distributions over the lifetime of the HCEs) even though some lump sums will be paid to lower paid non-highly compensated employees. The AFTAP tends to range between 85-90% each year.

[SoCalActuary]

The challenge is to have different assumptions for each person. You need to assume (reasonably) that the affected HCE's will get an annuity, while the others get a LS. Some val systems give you this choice. Others require that you run the valuation both ways (once to get the HCE values), and then override the FT & TNC for the exceptions and run the regular valuation for the rest.