COLAs

[jpod]

DB Plan has a cola formula for participants in pay status baked into the plan. Where can I find the IRS' position on (a) whether the the cola needs to be included in determining actuarial equivalent lump sum, and (b) how (the heck) you assign a value to the prospective cola. I know there has been private party litigation concerning (a), but where in regulations or other guidance can one find the IRS' position?

[Everett Moreland]

"The Court finds, for the reasons discussed herein, that the plan’s accrued benefit is the annual benefit commencing at normal retirement age for annuitants. That benefit includes COLAs under the terms of the Arkema Plan, and, under ERISA, where a defined benefit plan chooses to offer a lump sum one-time distribution, pensioners who opt for lump sums must be given the actuarial equivalent of that benefit. In this case, that means lump sums must include the actuarial equivalent of the COLAs that are promised and provided to annuitants." Lightfoot v Arkema, Inc. Retirement Benefits Plan (D. N.J. 6/27/13), available here:

http://docs.justia.com/cases/federal/district-courts/new-jersey/njdce/1:2012cv00773/270293/56/0.pdf?ts=1372423130

[jpod]

Yes, that is just another in the line of Rohm and Hass cases. But, I wish to find a statement of the IRS' position.

[david rigby]

Have you checked the 411 regs?

[jpod]

Found nothing in 411 regs, or 417 regs. No other IRS pronouncement found through fairly careful word searching. Wondering if all you actuaries out there have anything in grey books or blue books. What does IRS and/or PBGC say in connection with lump sum payments upon plan termination where a permanent COLA is baked into the plan? Perhaps it is so obvious to everyone (except me, Rohm and Haas and perhaps some others) that it is considered part of the "accrued benefit," but one would think that the IRS would have made a statement about it somewhere, some time.

[tymesup]

I'd amend the plan to provide an assumption for future COLAs.