Change in definition of Actuarial Equivalence

[John Feldt ERPA CPC QPA]

An employer has A.E. defined as 7% interest and uses the applicable mortaility table.

An HCE-owner terminated many years ago but the plan is restricted due to 110% C.L., so no payment has been made. The plan will soon be out from under this restriction.

This terminated HCE is at the 415(b) limit and is at retirement (age 65). The 415 limit for lump sum purposes is calculated using the 7% plan rate.

This HCE had been a 50% owner years ago, but no longer has any ownership. He had made some verbal agreements years ago about his plan benefits before selling his 50%(without consulting their actuarial service provider), and the amount payable now is higher than he had agreed upon.

The current owner and this terminated HCE discussed the issue and they want to know if it's possible to lower the lump sum payable for the terminated HCE. He intends to elect a lump sum payment.

If the plan amends the definition actuarial equivalence to 8.5%, no other participants lump sums are affected since they are all based on 417(e) minimums. All accrued benefits are unchanged.

Due to the 415 limitations, the lump sum for this HCE would now be limited to the lesser of the amount determined at 8.5% or at the 415 rate of 5.5% - is this correct?

Does 411 prevent the lump sum amount from being lowered in this manner?

[Mike Preston]

Yes.

[John Feldt ERPA CPC QPA]

Yes, 411 does not allow the 415 lump sum to decrease?

or, yes, the 415 maximum lump sum is now lower?

[david rigby]

It appears to me that Mike's "Yes" refers to your quesiton "Does 411 prevent the lump sum amount from being lowered in this manner?"

I agree with Mike.

The facts of this situation are similar to the Supreme Court decision in Central Laborers vs. Heinz a few years ago.

[Mike Preston]

Sorry for the ambiguity. David is right.