Interest on lump sum

Hi,

Thank you as always for the insights.

The owner of Corp that sponsored A DB plan (traditional) passed away in July 2024 at age 61 and 8 months. The plans NRA is 62. The plan default (if no election was made) is first to the wife, if no wife, then the distribution goes to the children. 

The wife was entitled to a lump sum in 2024.  However, the election forms etc. were not finalized, not due to beneficiaries fault, until May 2026.

1. Can you calculate the lump sum as of 2024, and then give interest since the lump sum was not paid until 2026.

2.Or must you actuarialy increase the accrued benefit from 2024 until the payout date of 2026, and then calculate the lump sum as of 2026?

3. Or are both methods ok?

Thank you

The question to answer first is what does the plan say for timing? Was the benefit REQUIRED to commence at an earlier time without regard to any election by the spouse, in which case you are correcting an operational defect and and option 1 seems appropriate. Maybe paying the greater of 1 and 2 could be justified but I probably wouldn't go that route if there are NHCEs in the plan.

If the plan does not specifically require that earlier distribution, then you are looking at a current annuity starting date after all conditions needed to pay out are satisfied, and then you are looking at option 2, provided those actuarial increases do not cause the benefit to exceed 415.

Was this an ERISA qualified Plan?

Are you talking about a QPSA? 

Was a lump sum the default or was it an option? 

You referred to "election forms".  What are the benefit options available to the surviving spouse in those election forms?    

Who was at fault for the failure to finalize the election forms for 2 years? 

What do the Plan Documents say about delayed payments?  

See Stephens v. US Airways Group, Inc., 644 F. 3d 437 (USCA DC Cir. 2011)  - unreasonable delay in payment of lump sum benefits entitled the claimants to interest. The delay in this case was 45 days.  On remand read Stevens v. US Airways Group, Inc. 102 F.Supp.3d 222 (USCD DC 2015).

Read 29 CFR § 4219.32 - Interest on overdue, defaulted and overpaid withdrawal liability - at https://www.law.cornell.edu/cfr/text/29/4219.32

David