Top 25 lump sum restrictions under 1.401(a)(4)-5(b)(3)

[Guest MJ1]

Where there more than one top 25 HCE requests a lump sum, must the determination of 110% (or 1%) take into account the effect of the payment to the other HCE? Or is it permissible to evaluate both HCEs independently and disregard a lump sum distribution to another top 25 HCE?

[Effen]

My understanding is that it is first come, first served. You look at each transaction independently. Your starting point for the 2nd payout, should be the ending point after the first.

[Andy the Actuary]

Generally, the math will have the funded percentage increase after a lump sum distribution, so long as LS < (1+x) x PV, Where

A=Assets; FT=Funding Target; LS=Lump Sum; PV=Amount of PV included in FT; A/FT=(1+x)

E.g. A=1,000,000; FT=800,000 ==> x=.25. So, if LS < 1.25 PV, funded percentage will increase. LS=100,000, PV=90,000

(1,000,000-100,000)/(800,000-90,000)=1.268

In short, in your case, it might not matter depending upon X and relationship of LS to PV. Otherwise, agree with Effen.

=============================================================================

A/FT=1+X==>A=(1+X) FT==> A-LS=(1+X) FT - LS = (1+X) FT - (1+X) PV + (1+X) PV - LS

==> (A-LS)/(FT-PV) = (1+X) + [(1+X) PV - LS]/(FT - PV) > 1+X so long as (1+X) PV - LS >0

[tymesup]

Good luck delivering the news to the second HCE.

[Guest Sieve]

Good luck delivering ATA's news to anyone who's not an actuary...!!