Lump Sum Distribution and IRS-Prescribed Assumptions

[Pension RC]

I am working on a DB where the only participants are a doctor, his wife, and a terminated employee. The terminated employee completed a distribution form to have the lump sum value of her benefit rolled over into an IRA. I have contacted the financial institution that holds the plan assets and they said that they need a letter of instruction mailed to them that is signed by a trustee (either the doctor or his wife) and that has a medallion signature guarantee provided by a bank. I drafted the letter of instruction and provided it to the doctor's wife. However, she explained that she and her husband are currently preoccupied with an urgent family matter and she doubts that she will be able to get to a bank this week. If she doesn't get to a bank until Monday, the financial institution surely won't receive it until December 31, and the rollover won't occur until 2014. However, the terminated employee knows that, if delayed until 2014, the lump sum will probably go down, as the December 2013 417(e) segment rates will need to be used (instead of the December 2012 rates). Is there any way to use the assumptions prescribed for 2013 if the actual distribution doesn't occur until 2014?

Any thoughts would be appreciated!

[Andy the Actuary]

Sure you could amend the Plan to increase the benefit for NHCEs retroactively to an amount which when the 2014 417(e) rates are applied give you the same lump sum. That's assuming there are no 415 issues.

Question is what is cause for delay? When was employee terminated? Was there plenty of advance notice so that a timely distribution could have been made but employer did not act with dispatch? If not, then perhaps chips should fall where they may. For example, employee terminated on 11/27/2013. There are no reasonable expectations that distribution would be made in December, given 30 day advance notice requirements.

[Guest GaryGaryGary]

Andy, it's not that I disagree with you BUT two of my large clients that have similar plan provisions have implemented a cut-off date that translates into 30 days before the effective date of the rate change in order to guarantee the higher lump sum. Yes, this promotes a lot of gaming, but so be it.