After-tax Contributions in a DB plan termination

[Guest Jhagan]

There is a DB plan termination where all participants are 100% vested in their accrued benefit. There are after-tax employee contributions made to the plan. In making the distribution do you 1) add the contributions to the amount of the accrued benefit? and/or 2) do you use the compute the taxable amount using the after-tax employee contribution credit?

[david rigby]

Not sure if we have all the relevant facts, but...

assuming you are referring to a lump sum distribution upon plan termination, the plan will define the accrued benefit and the lump sum. The latter is probably "actuarial equivalent of the accrued benefit". That lump sum amount includes the after-tax contributions.

Example, EE is age 40 at plan termination, with an accrued benefit of $100 per month, assumed to commence at normal retirement age of 65. The EE has contributed $200 in after-tax contributions. The lump sum at age 40 is (about) $2800. The EE would be eligible for a lump sum distribution at age 40 of $2800, $2600 of which is taxable (or eligible for rollover).