Paying lump sums after window expires- Part II

[Gary1899]

This was originally discussed in October, 2018 when the participant could be said to be at fault for not getting in their application on a timely basis before the window closed.

Now, it's the plan sponsor and/or the vendors administering the window that are at fault.

A sponsor has a calendar year plan and is working hard to take advantage of the interest arbitrage to take GAAP/IFRS gains for lump sums before December 31.

We anticipate that due to the tight time frame remaining in 2019 the trustee will not be able to cut checks in time for payments to be made by 12/31- anytime the week after is more likely due to the plan sponsors inability to verify some vital data before it's processed by the actuary, etc.  W.e are roughly talking about 100 people out of 1,000.

With 417e interest rates dropping, a strict application of the governing 417e rules will result in payments that could be significantly higher for these 100, resulting in a PR problem.

Can anyone rationalize the continued use of the 2018 interest rate basis for January 2020 payments?

[Lou S.]

As to the last question - No.

[Gary1899]

Thanks; with over 40 years if experience, I couldn't either; let's see what other say.  Never too late to teach an old dog new tricks.

[david rigby]

No. 

Inquire whether there is anything to be gained by changing the plan year.

[Sellarsian]

Suppose a plan uses the calendar year as its 417(e) stability period. It prepares an election package for a 12/1/19 ASD that includes a lump sum option of $X reflecting the plan's 2019 417(e) assumptions. UNOFFICIALLY, IRS representatives have said that, assuming the plan acts without undue delay, it does not violate 417(e) by paying the $X lump sum in early 2020, provided the plan received the participant's valid lump sum election (including spousal consent, etc.) before the end of 2019. However, if the participant's valid election is not received until after 12/31/19, a lump sum must be redetermined to reflect the plan's 2020 assumptions, and a new election package prepared.

That's how I read Q&A 10 from https://www.ccactuaries.org/Portals/0/pdf/Intersector/Intersector-IRS-2013-03-13.pdf

But, again, this is not official guidance.