No 1 year lookback period under 1.417(e) for determining GATT Interest

[Guest nickf]

This answer to this question may be contrary to the present understanding of many practioners.

A client’s defined benefit plan (“Plan”) presently provides for lump sum benefits to be calculated using the Plan’s applicable interest rate (PBGC) and mortality table (UP-1984) for actuarial. The applicable interest rate is determined by reference to the rates which would be used as of the first day of the plan year (January 1) in which the lump sum distribution occurs, by the PBGC to value a benefit upon termination of an insufficiently funded trusteed single-employer plan.

The Plan is being updated for the GUST amendments in anticipation of its termination, effective June 15, 2000. It is desired that Plan be amended, post GUST amendment effective date, to provide that lump sum benefits be calculated using the applicable mortality table and the applicable interest rate for the first full calendar month preceding the calendar month that contains the annuity starting date. The Plan has been in effect before December 8, 1994. Distribution of Plan benefits as a result of the termination will likely be made beginning in December of 2000.

We are attempting to determine whether Code section 411(d)(6) relief is provided in the event that the Plan is amended for GATT to provide that the “applicable interest rate” will be determined in accordance with, and solely on account of, regulation section 1.417(e)-1(d)(10)(iii) (i.e, Section 411(d)(6) Relief For Plan Amendments Pursuant To Changes To Section 417 Made By RPA '94 Providing For Statutory Interest Rate Determination Date) without regard to the requirements of regulation sections 1.417(e)-1(d)(10)(ii) (i.e., Section 411(d)(6) Relief For Change In Time For Determining Interest Rate).

In other words, as a result of the GATT amendment, can the participants’ benefits be calculated using an applicable interest rate determined as of October of 2000 without violating Code section 411(d)(6) and without the need for a “greater than” calculation for the one-year look back period under regulation section 1.417(e)-1(d)(10)(ii)? Additionally, a local IRS agent in Cincinnati indicated that he would approve the change without the need to conduct a greater than calculation during the one year lookback period because this is a safe harbor for such interest rate determinate date changes. Thanks.

[david rigby]

Not sure.

My understanding is that if the plan is being amended *during* the 2000 plan year to adopt the GATT minimum for lump sum distribution, then the minimum is the greater of the pre-GATT basis or the GATT basis for all distributions made between 1/1/2000 and the actual adoption date of the amendment.

After the adoption date, then the GATT minimum applies.