Is this possible?

[Guest Doogie61]

I have a 30 life DB plan recently submitted to the PBGC for termination. About 18 months ago, two participants who were eligible to receive distributions (NRA) elected to retire and take their money as a life annuity. Now it comes time to liquidate the assets. What happens to these two? Are we forced to purchase an annuity for them or can the "re-elect" and take the "balance" as a lum sum.

Our doc is a Non-standardized Corbel Prototype.

Any thoughts?

Doug

[david rigby]

Although a plan termination is in process, day-to-day plan administration does not stop.

- If the EE wants to retire, then do so under the plan. The PA may accomplish this by purchasing an annuity (it's permitted by the plan, isn't it?).

- Alternateively, if the PA wants to amend the plan to add a lump sum option for a retiring EE, not sure if this is permissible. Note that such amendment will change the overall plan liability, so it is advisable to review the instructions for Form 500. http://www.pbgc.gov/practitioners/plan-ter.../page13260.html

[SoCalActuary]

I believe the intent is that you honor the election made by the participant, so this means you will either buy an annuity or negotiate with the PBGC for them to take over the payment.

[david rigby]

Is this a distress (or involuntary) termination?

[Guest Doogie61]

It's a voluntary Standard Termniation. Our document allows for Lump Sums as an option. It's just that these two retirees decided that instead of a lump sum, they wanted a life annuity 18 months ago. Theve been receiving monthy payments ever since. Now the Trustee want's to shut the whole shebang down and he'd love to just pay them their "balance" in the form of a lump sum.

[Blinky the 3-eyed Fish]

If the plan language agrees, certainly they can be allowed to re-elect to take a lump sum now. It is an election though and not something that can be forced. So if they don't want to change, then an annuity must be purchased.

[david rigby]

If you amend to allow the retiree to elect a lump sum, don't forget the spousal election.

[David MacLennan]

I've never seen the doc, but it's near certain the Corbel non-standardized prototype would not allow cash out of an annuity after commencement, so you would be converting to a document w/o reliance unless you submit for an FDL.

There are probably lots of issues, but one that first comes to my mind is the requirement that the QJSA be the most valuable form of payment. Letting folks choose an annutiy and then cash out when their health goes south is more valuable, if the QJSA is the act equiv of the LO annuity (standard provision). So how you draft the amendment would be important, and extremely difficult to do correctly IMO. If it says something to the effect that cash-out is only upon plan termination then it might be less glaring, but I think the issue is still there.

Are either of these two annuitants at the 415 limit? Even if they are not, it would need to be addressed in the document somehow - again, extremely difficult to do correctly. Good luck drafting that 415 language with MASD's etc.!

Are either HCE's? Just might be a 401a4 violation to give them a more valuable benefit option . . .

Work smart - discourage the client on this and just buy the annuity. If they insist, tell the client to hire an ERISA attorney and you will execute what they tell you.

[Effen]

If they rejected the lump sum and took the annuity 18 months ago, what makes you think they would want a lump sum now? You can't force them to take it. Just go buy the annuity - its what the participant elected.