I have an 82-year old client, who has been in pay status for a number of years, whose COL adjusted annual benefit is $135,000, or $11,250 monthly under IRC Section 415(b)(1)(B). His limitation year is 12/1 through 11/30.

He want to take out his entire $135,000 maximum annual benefit in one amount in January, '05. I guess that is okay, so long as he does not take anything out in December, '04. Does anyone disagree?

The much more important question, though, is this. I gave him a lump sum maximum, based on the $135,000 and age 82, using the '94 GAR Mortality Table and 5.5% interest. It came to roughly $776,000. When I quoted this latter amount, I assumed that this year's $135,000 would be included in the lump sum.

The client wants to do both the $135,000 and the unreduced lump sum. I don't think he can. There is absolutely no reason to jeopardize the tax qualification of this plan and his potential rollover by doing this. At least, that's what I think.

Am I right or wrong? Any thoughts or ideas would be appreciated. Thanks in advance.

I'm a little confused. How can he be "in-pay status for a number of years" and now be electing a lump sum? Are you giving him a 2nd election? Are the annuity payments MRDs?



Assuming they are MRDs, he needs to receive a certain amount in 2004 and a certain amount in 2005. You can't shift one years payments to the next.

If they are not MRD's, does the Plan document allow for annual payments? Does the Plan document allow him to switch from monthly to annual? What did his election form say?

It sounds like the client is the owner or principal of a small plan, so that any election changes or amendment will be made to accomodate his specific needs. It also doesn't appear they are MRD's, although they do satisfy those requirements. That being said...



Agree. Of course like Effen mentioned, his election forms and the plan provisions need to accomodate this.



I am not sure how you got this figure. Using a simplistic LS calculation using 5.5% and 94 GAR I get: $135,000/12 * 73.5464 (APR at 82) = 827,397. Of course you could get trickier using an annual APR that would yield an even higher amount.



Agree. The $135,000 would be part of the LS payout total if taken in the same year.

Thanks for your comments. It is a one-life plan with $1.3 million in assets and he is looking to terminate the plan with as little termination surplus as possible. He retired at age 64 (i.e., 18 years ago), taking an early retirement benefit, indexed for changes in the 415(b)(1)(B) limit.

We are taking over this plan, and I appreciate your comments about how to get his election forms, etc in order. As you can surmise, his records do not exist or are not readily available from his previous actuary. From what I have been able to determine, he has not been explicitly taking MRD's, but on plan termination, something has to happen to the remaining PVB for him. Is my approach wrong? Thanks again. Carol Caruthers

Your approach isn't wrong, but you are severly undercutting his maximum distribution amount by a) calculating it to be $776,000 and b) not getting the distribution done by 12/31/2004. You still have the transition rule to keep you from having to use 5.5%, but only if you get the distribution done by 12/31/2004. I am still curious how you got $776,000 also.

My annuity purchase rate was 69.91837. This was based on 5.5% and the 94 GAR (male only). Was I wrong?

Unfortunately, yes, you were wrong. The new table for IRS 415 limits is the unisex 50% blended table as published by the IRS in 2002. The male table has no legal standing here unless your document specifically used it.

Rev. Rul. 2001-62.