Lump Sum Value of Long-Ago Majority Owner 70 1/2 Election

[Guest D.W.]

I have a plan that is undergoing a standard termination. The majority owner will probably forgo part of his benefit rather than fully funding the plan.

This majority owner is in his mid 80s and originally elected his RMD as a 20 year certain and continuous.

He is now well down the road from that and the plan allows him to re-elect as part of the plan termination. I'd assume since it's his own dime, he will want to take a lump sum, but we will provide him with all of the options available to him...well, because it's required and he's married, anyway.

So, the plan says that his lump sum value is "the value of his normal retirement benefit". This is standard language, I'd assume, to avoid early retirement subsidies being rolled into the lump sum value.

As time has gone on, his RMD has increased, so it is not one single value over its history.

I've talked to a few folks to see what they think the "present value of the normal retirement benefit" is for calculating a lump sum. Most people feel like the remaining value of the 20 year certain is the present value of the benefit, and I'm inclined to agree. The Plan obviously does not allow election of any benefit form that goes beyond the statutory certain period limit that would have been calculated as of his original 70 1/2 date.

A calculation accumulating benefits received each year and coming up with a benefits earned less benefits received does not make a lot of sense when you do the numbers because the compensation limit interferes.

Is there any guidance when a situation like this comes along? Nobody else in the plan is receiving anything, other participants who have left have elected to receive a lump sum. Does anyone see any issue with using that present value and allowing another election, that conceivably could include taking another certain and continuous annuity with the benefit of knowing 14 years on that he's still alive?

Aside from the MO's original intention to take a lump sum, if precedence is to make an actuarial adjustment for payments received, I will end up with a drastically different answer, and I want to make sure that no matter what, I don't run into an issue where he is allocated lump sum benefits he's not entitled to.

[FormsRstillmylife]

An actuary will explain to me what I am missing, but I would think you could treat the current benefit as a monthly pension at the current dollar amount as of his current age with its remaining guaranteed period plus life and convert that to a lump sum present value. This lump sum can then be converted to the other pension options that must be offered.

If I were trying to convert to just another form of pension, I would consider going back to when the pension started (and each improved value segment) to get the QJSA, etc. and then subtract the benefit already received.

[Guest D.W.]

Follow-up on this, there is a section in 401(a)(9) that discusses the re-election - the questions under regulation 1.401(a)(9)-6.

There are some stipulations, that I don't need to put here (415 conditions, etc), but it appears that a prospective-only look is suitable with some conditions on the actuarial assumptions used.

My concern, without seeing an example in the regulations, was that there may be some requirement to do calculations with a look at satisfying some sort of equivalence based on the original date of commencement. Those kinds of things fall apart with participants long past their commencement dates.

Fortunately, it doesn't look like anything is required other than to make sure the modified stream and original stream together do not violate 415 as of the original starting date.