Retroactive payments (beyond NRA)

[Dinosaur]

Participant is beyond NRD (1/1/2004) and there are excess assets in the plan. It is possible to have the the participant make an election (with spousal consent) to pay retroactive monthly payments (back to some date) to use up the excess assets?

For example, assume the monthly benefit is $16,666.67 (payable as a life annuity) and the corresponding lump sum is $2,078,000 (maximum). Assume the market value of the plan assets is $2,400,000. Assume he elects the joint and 100% survivor annuity of $14,000 per month, this would result in retroactive payments of 23 months to use up the excess assets (so retroactive to around 7/1/2009). He would continue to receive the joint and 100% survivor annuity benefit and would have the option to receive the benefit in a lump sum at plan termination (sometime at the end of this year, I think).

PPA allows for in-service distributions so I'm wondering if it can be retroactive.

His accrued benefit will not increase in the future (stuck at highest 3 consecutive years from way back).

[SoCalActuary]

Your suggested approach was used in a PLR in 2002-2003 period. The IRS then reviewed their 415 rules, and limited the RASD to the maximum 415 benefit annually, not the lump sum.

I think you are out of luck on this.

[Andy the Actuary]

As an aside, the Plan would have to provide for a Retroactive Annuity Start date election.

[Dinosaur]

Your suggested approach was used in a PLR in 2002-2003 period. The IRS then reviewed their 415 rules, and limited the RASD to the maximum 415 benefit annually, not the lump sum.

I think you are out of luck on this.

I am confused (having one of those days). The joint and 100% survivor monthly benefit is the actuarial equivalent of the participants 415 max benefit ($200,000 annually). I want to just have the participant make the election now to start the monthly benefit (retroactive to sometime in 2009) to use up some of the excess assets. I am confused as to why you referenced the lump sum (I showed the lump sum equivalent to show the excess assets). We only want to the pay the actuarial equivalent of the 415 max monthly benefit retroactive.

I can see some language of the ASD in Section 417 but not in 415 (yet). Any cite for the new rules.

[SoCalActuary]

In taking the retroactive payments, any amount over one year of 415 limit is a reduction in total 415 limits, representing a partial lump sum settlement.

Example:

Suppose 415 LS at 65 is $2.4m on $195k annual benefit.

3 years retro payments are made for 62-65 period at age 65. $195k x 3 = $585k. Of that total, 390k is retroactive amount in excess of current 415, so treated as a partial lump sum. $390k / 2.4m = 16.25% of total. This becomes roughly $31,688 of annual benefits paid as a lump sum. The remaining 415 limit is now $163,300 annual benefit.

That is my interpretation.

[Dinosaur]

In taking the retroactive payments, any amount over one year of 415 limit is a reduction in total 415 limits, representing a partial lump sum settlement.

Example:

Suppose 415 LS at 65 is $2.4m on $195k annual benefit.

3 years retro payments are made for 62-65 period at age 65. $195k x 3 = $585k. Of that total, 390k is retroactive amount in excess of current 415, so treated as a partial lump sum. $390k / 2.4m = 16.25% of total. This becomes roughly $31,688 of annual benefits paid as a lump sum. The remaining 415 limit is now $163,300 annual benefit.

That is my interpretation.

Thanks for the information. Very helpful.

Assume that the retro payments are paid now in a joint and 100% annuity (retro for no more than 12 months). Can the participant then immediately elect a lump sum now? He is not terminating employment and he is over NRA. Assume plan is not terminating.