Cash Balance Plan Distribution as it relates to 417(e)

[Gary]

A participant retires with:

Cash Balance Account = 200,000

Final Salary = 125,000

Account Conversion factor = 10

He has option of receiving an annuity of 200,000/10 or 20,000 per year,

or

He can get 125,000 as a lump sum (can receive up to final salary as lump sum) and the remaining 75,000 as an annuity of 75,000/10 or 7,500 per year. This is the desired option, so analysis below is based on this option.

There seems to be issues w/r/t not addressing 417(e). It appears that 417(e) must be addressed in some way. The two ways I see are:

1. convert account balance to an annuity, compute 417(e) lump sum and if higher than account balance (say it's 250,000), let that be the basis to compute the annuity portion in addition to the lump sum of 125,000. i.e. an annuity based on additional 125,000 or 12,500 per year.

2. compute an equivalent annuity from the 125,000 lump sum received (using 417(e)) and offset it from the gross annuity (based on entire CBA). If this is greater than the annuity portion of 7,500, than this is what the participant should get.

Any comments on this?