Change in factors used to compute lump sum-grandfather requirements?

[AndyH]

If a DB plan provides that a lump sum benefit is calculated by using the greater of GATT and the result obtained by applying a fixed rate and other mortality table, and it is desired to eliminate the fixed rate from the calculation, what needs to be grandfathered to avoid a prohibited cutback?

Assume a plan specifies that a lump sum is the greater of floating GATT (currently 5.85%) and UP84 at 7%, and we wish to eliminate the fixed rate. What must be grandfathered? It seems the options are:

1. Nothing

2. The PVAB on the effective date of amendment

3. The PVAB on the adoption date of amendment or effective date, if later.

4. The fixed rate applied to the accrued benefit as of 3 or 4?

We're interpreting having a fixed rate as potentially problematic for 415 purposes, and would like to eliminate it in some circumstances. But, that's another subject.

Opinions on what if anything needs to be grandfathered would be appreciated.

[Guest Steve C]

The lump sum should be no less than the product of (1) the accrued benefit on the later of the adoption date or effective date, and (2) UP84/7% factors (as of the annuity starting date).

See 1.417(e)-1(d)(10)(vi)(B), and Example 2 that follows.

[AndyH]

Thank you, Steve. Right on point.