Rollover into DB plan - Immediate annuity

[Guest NJ-Center of the Universe]

Does anyone have any experience with a qualified DB plan that allows employees to roll a 401(k) or other qualified plan distribution into the DB plan and immediately convert it to an annuity? Our plan contains that provision but no one has ever done it. Of course, we have not advertised it or pushed it either.

Does anyone have or know of a plan that allows this and where employees actually take advantage of it?

Thank you to those who respond.

[Andy the Actuary]

Have never seen this but couldn't develop a worse idea on my own. Why take on the added administrative burden and fiduciary responsibility? Sounds like a prototype offered by an investment house or insurance company. If the option to nuke it is available (and likely is in the plan adoption agreement if this is a prototype), consider amending the Plan.

[mbozek]

Does anyone have any experience with a qualified DB plan that allows employees to roll a 401(k) or other qualified plan distribution into the DB plan and immediately convert it to an annuity? Our plan contains that provision but no one has ever done it. Of course, we have not advertised it or pushed it either.

Does anyone have or know of a plan that allows this and where employees actually take advantage of it?

Thank you to those who respond.

I have never seen a DB plan that allows rollovers into the plan to purchase benefits. I would delete the provision ASAP.

[SoCalActuary]

Does anyone have any experience with a qualified DB plan that allows employees to roll a 401(k) or other qualified plan distribution into the DB plan and immediately convert it to an annuity? Our plan contains that provision but no one has ever done it. Of course, we have not advertised it or pushed it either.

Does anyone have or know of a plan that allows this and where employees actually take advantage of it?

Thank you to those who respond.

Lots of public plans allow this, as a purchase of "airtime", and it does have a long history in that world.

[david rigby]

This provision has some good theoretical support, although (as mentioned above) it creates some serious practical problems for the plan sponsor.

But to answer your question, I believe you would convert the LS to an immediate annuity using IRC417e provisions. Then that annuity is valued as a plan liability using IRC430 provisions. Opens the door to lots of risk, all on the plan sponsor. Other than that, it's a pretty cool way to provide an annuity from a DC plan.