Payout to Substantial Owner in Defined Benefit Plan

[drakecohen]

Is the rule that a Defined Benefit Plan has to be 110% funded AFTER the substantial owner takes his/her distribution and, if so, what factors is that liability value calculated with?

Options:

1) plan document;

2) 417(e)

3) whatever factors the owner's lump sum was based on

4) HATFA rates

5) PPA rates

[My 2 cents]

The plan probably still refers to "current liability". Which, of course, is probably no longer otherwise relevant.

It is my understanding of the IRS position that the basis is to be reasonable and consistently applied (at least within a given plan year). HATFA rates are probably fine. PPA rates are probably fine. Consistent, ideally based on a documented policy. If it is specified in the plan document or a plan amendment, be sure to follow it!

Probably unnecessary to go so far as to base the determination on lump sum factors.

And (assuming that the applicable AFTAP in effect on the date of distribution, deemed or certified, prior to the distribution, was at least 80%) it is always possible to pay the distribution if adequate security is established!