Restricted Lump Sum

[Pension RC]

We have a problem. In a H-W plan, the husband recently took a full distribution of his benefit as a rollover. For some reason, two points were ignored - 1) the 110% test and 2) the fact that the AFTAP would be less than 80% after the distribution. Other than fully repaying the distribution with earnings - are there any other solutions?

Thanks!

[Lou S.]

Make a contrbution to immediately bring the plan to 110%?

[Andy the Actuary]

Get some help. Funding this plan to 110% could cause trouble later on if the Plan evolves into having assets in excess of those that statute allows to be distributed.

[My 2 cents]

Not sure if the rules are different with respect to top-25 restrictions if the only participants are a husband and wife who between them own the sponsor , but it is my understanding of IRC Section 436 and its regulations that once certified, the AFTAP continues in effect through the end of the plan year irrespective of intervening events (other than plan amendments increasing liabilities, sponsor bankruptcy, or the triggering of an Unpredictable Contingent Event Benefit). No AFTAP recalculations during the year unless one of those things happen. A mid-year market debacle would not, by itself, have any impact during the plan year after the AFTAP was certified. A run-on-the-bank spate of lump sum claims would similarly not result in the certified AFTAP being lowered until the following plan year.

The described situation would not represent a problem with IRC Section 436 but could be a problem for top-25-high restriction purposes, which do require analysis of the situation after the proposed lump sum is paid (but at the 110% level, not the 80% level).