Oopsey

[Andy the Actuary]

This falls into the category that clients don't always follow instructions that they normally follow and to quote Forrest Gump, "It Happens."

A 300+ life DB plan for a not-for-profit organization does not provide for in-service distributions. Further, the plan provides for a late retirement date that is the first day of month coinciding with or next following the actual retirement date. An HCE turned 65 on October 4, 2009 and indicated he would actually retire on November 9, 2009. In August 2009, the HCE was given an election package that provided for a lump sum distribution effective December 1, 2009. Instructions were provided not to distribute payments until on or after December 1, 2009 and then only if HCE had terminated employment as planned on November 9, 2009 (which he did). The same personnel have been administrating the plan for years.

On November 9, HCE terminated employment and was handed a lump sum check on November 9 for $1,020,000, which was the payment for December 1 distribution date. Had the distribution been calculated as of November 9, the amount would have been $1,016,000.

Thoughts?

[Mike Preston]

Ask for repayment of the minor amount of overage. If the participant won't pay, have the plan sponsor make a restorative payment. Don't do it again.

[Effen]

Assuming there was no 415 violation, I think I would just tell the client to be more carefull if they are going against the specific plan's procedures.

We typically also calculate lump sums to the date of anticipated payment with a 2-3 month lead time, but I don't make a fuss unless they pay them late. With all the different ways people calculate lump sums, I can't believe this would be a big problem. The fact he was an HCE is troublesome, but...

Heck, I keep hearing stories about people who calculate lump sums to the nearest year.