Can mortality table be protected?

[dmb]

A plan is amended to adopt standard PPA lump sum rates and remove an enhanced lump sum basis equal to the 30-Year Treasury Rate minus x% on benefits earned through 12/31/2008.  The enhanced lump sum basis is being protected on the 12/31/2008 benefit, including the Mortality Basis which is the Applicable Table incorporated by reference, including any subsequent pronouncements.

Can this plan now amend the enhanced lump sum basis in 2017 to state that the mortality table for the enhanced lump sum protection is and will be going forward the 2017 Unisex table?  In essence do future mortality improvements under IRC Section 417(e)(3)need to be protected on the enhanced lump sum calculation on benefits earned through 12/31/2008.

If the plan can be amended as described, is an ERISA Section 204(h) Notice required?

 

[Mike Preston]

Can't do it.

[david rigby]

Well, you can amend a plan but you always have to be concerned with anti-cutback issues.  If your proposed amendment would provide a LS basis on the 12/31/08 portion of the AccBen that is equal or greater than the current plan provision, then it would be permitted. 

However, it appears you are suggesting something else, so "What Mike said."

[My 2 cents]

1.  The old lump sum basis was NOT merely the 417(e) basis due to the 1% reduction in the 30-year Treasury rate, so the plan is probably not entitled to the free pass on the anti-cutback issues that it otherwise would have had for the PPA change.  Not sure, with something other than a straight 417(e) basis, that you were entitled to just change away from the 30 year rate minus 1%.  Are you still using that to calculate the grandfathering?

2.  If you are required to tie the grandfathering to the applicable mortality table or else, no need for a 204(h) notice - nothing being reduced.

3.  As a general rule, no grandfathering has been required when going from a straight 417(e) basis (old rules) to a straight 417(e) basis (new rules), but that does not apply when there is a special rule (other than 417(e) as is) that acts as a minimum for the lump sum. 

[dmb]

Can you elaborate on your opinion that this amendment would not be allowed.  Under the proposed amendment the minimum PPA lump sum basis on the full plan benefit, including future mortality improvements under IRC Section 417(e)(3), will be protected.  This protected minimum lump sum value will be compared to the enhanced lump sum value of the 12/31/2008 accrued benefit using the 30-Year Treasury Rate minus x% and the 2017 Unisex Table.  The plan will pay the greater of the two lump sum values.

No current benefits earned and lump sum basis are being taken away from anyone, and a 204(h) Notice would be issued explaining the estimated effect of the plan amendment on future lump sum values calculated after 12/31/2017.

[My 2 cents]

The minimum basis under 417(e) is the table that the IRS publishes for that purpose for the stability period containing the benefit commencement date.  While the IRS may gear that table to produce results similar to a mortality table with full generational (projected) mortality improvements, adjustments to the promulgated mortality table takes the plan's table out of being a 417(e) table.  The IRS 417(e) table is required to be used as is when assessing the minimum lump sum under 417(e), and there should be no further mortality improvements assumed.

Provided that the equivalence basis under the plan produces benefits at least as large as those required under 417(e) (for purposes of discussion here, assuming that plan benefits are not constrained by 415 limitations), you can always amend the assumptions as you please, provided that grandfathering is included to the extent necessary to prevent cutbacks.