§417(e) - Minimum Lump Sum

Question 1

What forms of payment does 417(e) minimum value apply to?

Answer 1

Benefits that

• Are Decreasing Annuities (JNS Exception) OR
• Not payable for the life of the participant

I.e. Certain Only, Lump Sum and Social Security Level Income

Question 2

If a participant has a benefit with present value less than $X based on assumptions in Section Y then it can be a mandatory cash-out. What is X and Y?

Answer 2

$5000

417(e)

Question 3

Plan document Actuarial Equivalance: 5.00%

417(e) Actuarial Equivalance Rate: 4.32%

Which rate is used? Both use applicable mortality

Answer 3

4.32%

The Lump Sum value cannot be less than that calculated under 417(e), so 4.32% would need to be used

Question 4

What is the stability period under 417(e)? What are possible values?

Answer 4

Stability period is how long the applicable interest rate/mortality stays constant. Mortality Table is as of first day of stability period.

Possible values are 1 calendar month, 1 plan/calendar quarter and 1 plan/calendar year

Question 5

If the look back or stability period for 417(e) is changed by amendment, is grandfathering required? If so, how long?

Answer 5

Yes - 12 Months to avoid the anti-cutback rules

Question 6

What is the lookback period? What are possible months?

Answer 6

Administrative Ease - i.e. you can use the rates from x months back (or average of two or more months) to calculate LS

x can be 1 - 5

Question 7

T/F Lookback Month under 417(e) must be the same as the lookback month under 430.

Answer 7

False

Question 8

T/F 417(e) App. Mort. is different by gender.

T/F Plan can substitute a plan specific table for App. Mort. if used for Funding.

T/F 417(e) App. Mort. is different if disabled.

Answer 8

All are false

Question 9

T/F Applicable Interest Rate is a 24 mo average

Answer 9

False

Question 10

T/F if a benefit is bifurcated into a LS and an SLA, both the SLA and LS are subject to 417(e).

Answer 10

False - only the LS

Question 11

What assumptions are used to value a lump sum under section 430 if the plan defines LS AE as 417(e)?

Answer 11

Applicable Mortality is used for post retirement (pre retirement is whatever the plan uses)

Plan uses the 430 (not 417) segment rates for the conversion - i.e. use the segment rate that would correspond to that year (i.e. 1 for first 5, 2 for next 15, then 3)

Question 12

What assumptions are used to value a lump sum under section 430 if the plan defines LS AE as 5% and App Mort?

Answer 12

App mortality is used for post ret decrements and Pre ret is whatever the plan uses under 430.

The plan uses the either 5% or 417(e) rates to determine LS. Whichever provides a greater benefit.