Adding lump sum options and/or window - discrimination issues?

We have a plan that has been frozen since 2010 and currently only pays monthly benefits.  The plan is covered by the PBGC.  They're debating terminating and are exploring the options of adding a lump sum option/window to "unload" some of the liabilities.  To use round numbers, let's say this plan has: 1 participant who is active on deferred retirement, 10 participants who are terminated but not yet at NRA, 10 participants retired and in pay status (5 of these are at RMD age).  My questions here primarily circulate around possible discrimination issues..

-If they amend the plan to add the lump sum option (without the use of a window), this would only open the lump sum option up to participants that have terminated and are not yet in pay status, correct?  Would this potentially cause discrimination issues since it would not allow participants currently in payout status to elect a lump sum?

-If we add a lump sum window for the participants already in pay status, would it be ok to only offer it to any employees who are not part of the "Top 25 paid HCEs"?  We have 3 HCEs: 2 are in pay status and the other is the active deferred retirement.

The plan is fairly well funded an probably won't have any issues with the 110% asset rule for the top 25 paid HCE's, but we're hesitant to jump right to terminating and offering lump sums and/or annuity purchases for everyone since that could potentially be a high cost.  Ideally, we'd like to stagger the payouts so we can analyze after each step.

You can do a window - discrimination is looked at separately with respect to current employees and former employees, so no problem offering only to current employees.

You can offer lump sum to retirees in pay status provide it is non-discriminatory with respect to that group, and so limiting to (former) NHCEs even if top-25 restrictions are not in play would be OK as well.

I would suggest not adding a general lump sum option and, outside of any window, only allow lump sums upon termination. But LSWs in advance of a plan termination is not w/o its drawbacks.

The counts you give are small - is that just for example purposes or is this a relatively small plan? Because if you offer a lump sum window, and also offer to retirees, and are left with a small in pay status group for which to purchase annuities, you could have a very difficult task in finding an insurer to underwrite and likely incur a sizeable negative selection premium as well. If you have a reasonable retiree liability, that is what attracts the insurer and helps ensure they'll write the deferreds as well. Insurers love immediate annuities, do not like deferred annuities (from plans), and hate plans with general lump sum options. Anything the sponsor can do to maintain the former while avoiding the latter as much as possible will improve their plan termination annuity purchase experience (willing providers and pricing). A good broker (we use Brentwood) can advise you all on that and (this is the mistake often made by not doing) should be consulted now rather than waiting until the formal termination process begins.

If your plan is small, if it looks like you may be able to entice everyone, actives/deferreds/retirees, to take a lump sum, that would be your best outcome but it's a risky proposition if you're left with just a couple of annuities and a killer if any are deferred.

Thank you for the insight, it's much appreciated.  Those numbers are very close to actual - it is a small plan.  

All of the participants that are not yet in pay status have relatively small benefits, so the sponsor is expecting all of them to take the lump sum, which is good.  They are expecting a couple of the retirees to continue to want the monthly benefit, so we will likely have that issue of finding an insurance company for 1 or 2 contracts...

The plan doesn't have a broker and in my role (as the TPA), I'm limited on the advice I can give, and we don't do the annuity shopping.  I will suggest that the sponsor consult a broker.  They were thinking that they would pay the lump sums out and then shop for the annuities after they knew for sure who was taking one, but it sounds like it'd be prudent to get the ball rolling on that earlier to get an idea of the cost.

Brokers can help them place the annuity, but everything has a cost.  Nothing prohibiting the sponsor going directly to the insurance company and skipping the middle man.  There are only two or three that will quote at that size.