What to Pay?

[Andy the Actuary]

A participant elected payout under a 20 C & L starting 1/1/2004. Participant died 12/31/2008. Client has been unable to locate designated beneficiary. Attorney has advised not to pay survivor benefit to estate lest beneficiary show up at a later date and the plan could be on the hook for paying the death benefit twice. Presumably, this is sound advice?

In any event, participant received 60 payments so 180 payments are due.

Suppose on 1/1/2013 beneficiary is located. What should be paid to beneficiary? [the plan is silent]

(a) 180 payments starting 1/1/2013

(b) 48 back payments plus 132 payments commencing 1/1/2013

© 48 back payments accumulated with interest plus 132 payments commencing 1/1/2013. If ©, what interest rate should be used when the plan -- which is 3,000 years old -- states a single non-age specific factor (.865) for conversion to 20 C&L and the underlying interest rate (and mortality table) is not stated in the plan?

[Effen]

I think I would ask the attorney for his/her opinion and do that.

If it was up to me, I would probably lean towards "c" and just use some "reasonable" interest rate - maybe the effective rate, maybe the trust earnings rate, maybe 7%.

Do they have the beneficiaries SSN? How about setting up an escrow account and just make the payments to that until the person comes forward.

[david rigby]

I lean toward (b). If the beneficiary put forth a good argument in favor of ©, I might be sympathetic. Of course, if the PA has a precedent or administrative practice, that should be included.

While Effen's suggestion of an escrow account might be nice, the PA still has to account for the possibility that the designated beneficiary will never show up, or is currently deceased, in which case the PA (and/or the plan) may have procedures for designating a contingent beneficiary.

[Andy the Actuary]

I think I would ask the attorney for his/her opinion and do that.

If it was up to me, I would probably lean towards "c" and just use some "reasonable" interest rate - maybe the effective rate, maybe the trust earnings rate, maybe 7%.

Do they have the beneficiaries SSN? How about setting up an escrow account and just make the payments to that until the person comes forward.

Escrow account into money market is appealing. Crediting a reasonable interest rate is a splendid pre-ERISA recommendation. It would work if the Plan were amended, which should likely happen anyway.

[tymesup]

Have you tried to determine the underlying mortality table and interest rate? I'm assuming you have conversions to some other C&L's and/or ages. They probably didn't use segment rates or a yield curve 3,000 years ago.

[Andy the Actuary]

Have you tried to determine the underlying mortality table and interest rate? I'm assuming you have conversions to some other C&L's and/or ages. They probably didn't use segment rates or a yield curve 3,000 years ago.

Can you suggest a way to do this when the factor -- .865 -- applies at all pension start ages? I.e., pension starts at age 55, use .865; pension starts at age 62, use .865. The mortality table could be the 1951 GA or 1937 standard annuity table for all I know.

[tymesup]

Do you have conversions for other certain periods? What was the normal retirement age?

If you can find a table/interest rate combination that works for the factors you have, that would seem reasonable under the circumstances.