DB Plan and 401(a)4 Testing

[Dougsbpc]

The regulations state that the most valuable accrual rate should be based on the increase in the participant's most valuable optional form of benefit, and further, that the most valuable optional form is determined by calculating the normalized QJSA associated with the accrued benefit. (1.401(a)(4)-3(d)(1)(ii))

Does anyone believe that a lump sum would be the most valuable optional form of benefit if a plan offers a lump sum as an optional form of benefit?

The difference in the most valuable accrual rate is substantial.

Thanks.

[AndyH]

Yes, but apparently it is supposed to be ignored, at least the portion attributable to 417(e) rates. If you search this board, you will find lots of discussion of this, and evolving consensus toward that conclusion.

[Hojo]

Yes, but apparently it is supposed to be ignored, at least the portion attributable to 417(e) rates. If you search this board, you will find lots of discussion of this, and evolving consensus toward that conclusion.

Yes, this is pretty standard. The QJSA is always considered the most valuable because, if not, then the QJSA fails 401(a). 417(e) just threw a screw into things, but I'm almost positive the IRS took the position that the QJSA trumps it in terms of testing.