Removal of Restrictions

[Andy the Actuary]

FACTS

(1) Plan is restricted from distributing benefits in a lump sum because AFTAP<60%.

(2) Participant eligible for early retirement elects immediate monthly payment with full disclosure that lump sum distributions may be available at a later date if participant defers start date and that election to start immediate monthly pension, including distribution form, is irrevocable once first payment is made.

(3) Plan does not provide for opportunity to elect a lump sum of remaining payments once restrictions are lifted.

(4) In three years, AFTAP>80%

Conclusion

Monthly payment continue under distribution form originally elected.

Anyone see any problems???

[Guest Quagmire]

Nope.

[Andy the Actuary]

Nope.

Suppose the example is modified so that calculated AFTAP >80%, but AFTAP defaulted to <60% because Plan Administrator refused to request EA to certify AFTAP? Is your answer the same?

[Guest Quagmire]

Nope.

Suppose the example is modified so that calculated AFTAP >80%, but AFTAP defaulted to <60% because Plan Administrator refused to request EA to certify AFTAP? Is your answer the same?

There's a possible breach of fiduciary responsibility by the Plan Administrator, and the participant could sue to obtain the benefit, but otherwise, the same answer. A "calculated AFTAP" has no meaning, the only AFTAPs are either certified or presumed per § 1.436-1(g)(2).

[Andy the Actuary]

Thank you. It was clearly the intention of Congress to punish plan sponsors who fail to fund their plans. They did not envision that some plan sponsors may use this provision to prevent fund depletion when a plan is inadequately funded. I.e., if 80%, lump sums are granted on a first come, first serve basis to any NHC until the plan runs out of money. To some, this is no more just than not distributing lump sums to anyone.

[Guest Quagmire]

Thank you. It was clearly the intention of Congress to punish plan sponsors who fail to fund their plans. They did not envision that some plan sponsors may use this provision to prevent fund depletion when a plan is inadequately funded. I.e., if 80%, lump sums are granted on a first come, first serve basis to any NHC until the plan runs out of money. To some, this is no more just than not distributing lump sums to anyone.

I agree. It's one more example of bad drafting in PPA.

[david rigby]

I agree. It's one more example of bad drafting in PPA.

Your tax dollars at work.

[ScottR]

Agree that it's a stupid provision.

One possible remedy to make it a little more workable: Amend plan to give affected participants a 1-time option to take the remainder of their monthly benefits in a lump sum, for some specified period of time after the plan becomes > 80% funded.

... Scott

[Andy the Actuary]

Agree that it's a stupid provision.

One possible remedy to make it a little more workable: Amend plan to give affected participants a 1-time option to take the remainder of their monthly benefits in a lump sum, for some specified period of time after the plan becomes > 80% funded.

... Scott

No remedy called for unless required by law. Plan sponsor does not want to pay lump sums.