Interest on lump sum

[SSRRS]

Hi All,

Happy Holidays to All. 

A DB plan ret age is 62. Employee retirement date was march 2025 but did not receive his lump sum until Dec 2025. He was entitled to his lump sum since March 2025. What rate would you use to give interest on the lump sum from march 25 to Dec 25?  Plan equivalence? Thank you

[Bri]

Sounds like you should do the AE adjustment from March to December on the benefit, and then calculate the lump sum as of December based on the adjusted benefit.

[fmsinc]

You have early retirement, usually age 55; normal retirement, usually age 65; and the actual date that the employee retires.  Unless you want to terminate the employee at a certain age he/she will continue accrue pension benefits until he actually retires and enters pay status.  In your case you need to toss your age 62 analysis and compute the lump sum when the employee actually retired in March, 2025, and then add interest equal to gains and losses at an interest rate you would have computed on a distribution from a defined contribution plan from the March, 2025, Valuation Date to the December, 2025 Distribution Date. 

How does actuarial equivalence apply to your situation.  Presumable the lump sum is the present value of the employee's future stream of income had he elected an annuitized payout. The concept of actuarila equivalence applies to payment to a spouse or former spouse in the form of a QJSA or a QPSA.  

DSG   

[Effen]

fmsinc - Hugh?  

OP said NRD was 62 w/ NRD 3/1/25.  Since he didn't receive his benefit as of 3/1/25, it must be actuarially adjusted to reflect the delayed payment.  (This assumes he was not working in suspendable service after 3/1/25 and timely received a Suspension of Benefits Notice.)  If he was terminated as of 3/1/25, or if he was active but didn't receive an SOBN, an actuarial increase is required.  First you need to adjust the accrued benefit to reflect the delayed payments, then apply the lump sum factor at the age of distribution.  

This has nothing to do with a DC plan, no idea what you are referring to with those comments.  

[SSRRS]

6 hours ago, Bri said:

Sounds like you should do the AE adjustment from March to December on the benefit, and then calculate the lump sum as of December based on the adjusted benefit.

Thank you very much, Bri, for the clear answer

[SSRRS]

Thank you Effen. Your quick response saved me from starting to self doubt.