Restrictions on cashouts; 417(e) question

[newguy2012]

I am looking over 417(e)(3)(B) and wondering how this plays out in the real world and how 415(b)(2)(E)(ii) affects 417. From my understanding, the 415 section referenced above sort of sets a floor on cashouts? ("the interest rate (under 417e) shall not be less than the greatest of 5.5 %", etc).

Is the cashout the 5k or less cashout or is it broader. Any light that can be shed on this would be helpful. As you can probably tell, I am so confused that I'm not even sure how to ask the questions. So, any help on understanding the Hows and Whys at a fundamental level would be greatly appreciated.

Feel free to add any history of the law.

[SoCalActuary]

Very complex issue here. The intent is that a participant get the benefit provided under the plan language for a lump sum.

But they might not be able to invest at the interest rates in the plan assumptions, so their lump sum must be based on current interest rates and mortality as regulated under 417e.

However, greed must be controlled, so the maximum lump sum is limited further. It cannot exceed a lump sum computed using 5.5% interest rate, or, if less, 105% of the lump sum generated on 417e. That really means nothing unless 417e rates are consistently above 5.5%. And that second limit only applies to plans with 100+ people.

Good luck on this first step in DB actuarial work. Lots to learn.

[newguy2012]

Very complex issue here. The intent is that a participant get the benefit provided under the plan language for a lump sum.

But they might not be able to invest at the interest rates in the plan assumptions, so their lump sum must be based on current interest rates and mortality as regulated under 417e.

However, greed must be controlled, so the maximum lump sum is limited further. It cannot exceed a lump sum computed using 5.5% interest rate, or, if less, 105% of the lump sum generated on 417e. That really means nothing unless 417e rates are consistently above 5.5%. And that second limit only applies to plans with 100+ people.

Good luck on this first step in DB actuarial work. Lots to learn.

OK. I will need to spend more time on this in order to understand. Confusing. It looks like 417(e) just deals with QJSA and QPSA but then it looks like it deals with lump sum distributions.

If it deals with lump sum distributions overall, I guess this impacts the definition of actuarial equivalence in the plan, correct? or it could?