Life Expectancy on DB RMDs

[Young Curmudgeon]

I'm looking at a one-man DB plan where the participant will go into pay status at age 70.5 for RMD purposes. Based on the lump sum and payments, the plan will deplete all assets when the participant reaches age 83. The plan uses the GAR94 proj. to 2002 table. My question is whether we can decrease the minimum distribution by changing to a "longer life expectancy" table, or is this really being driven by the table for the 417(e)?

It seems odd that a DB would only fund to pay until age 83 when life expectancy on the DC side is so much longer.

[david rigby]

It seems odd that a DB would only fund to pay until age 83 when life expectancy on the DC side is so much longer.

Huh? Is the plan fully funded? If so, it seems unlikely that assets will be exhausted at age 83. Are you anticiapting a zero investment return?

[Lou S.]

Correct me if I'm wrong but don't DB plans have to start paying the annuity benefit to statisfy the RMD rules?

[AndyH]

"The plan uses the GAR94 proj. to 2002 table."

For what?

ditto Huh

[Andy the Actuary]

Check MRD provision in plan document for guidance.

[Young Curmudgeon]

Here's some more detai:

The table is from the actuarial equalent section of the document, 5.5% interest rate pre/post, 1994 GAR Projected to 2002. I have a lump sum of $1,577,526 on a monthly accrued benefit of $13,252. It's fully funded. If you draw $13,252 each month from a lump sum earning 5.5%, you exhaust the funds when you're 83. My question is whether we can change to a different table and subsequently lower the required payment by increasing the life expectancy. Possible?

[AndyH]

Unless I'm missing something, Lou is right and AtA's suggestion would confirm that.

[Effen]

The "lump sum" is simply the present value of the monthly annuity at a specific point in time. The $1.5 M is simply the "value" of the annuity today.

The plan has the obligation to pay the $13,525 monthly annuity for the lifetime of the participant. The value of the annuity will fluctuate based on interest rates and life expectancy. If he lives until 83, the annuity will still have significant value. However, if he dies, the annuity will have no value.

If the participant is not making contributions into the plan, there is probably no real reason to continue it. It may be best to terminate the plan, roll the money to an IRA, and take the MRD's using the IRA rules.