Plan purchases annuities to pay retirement benefits other than small cashouts. No lump sums. AFTAP is 70%. If employer can pay monthly benefits from the pension fund rather than purchase annuities, is plan subject to deemed waiver of credit balance if it gets AFTAP to 80%?? Thanks.

No, even if it doesn't get it to 80%. But that would presume that there are no options which would trigger the restrictions. I understand that there aren't lump sums, but are there other benefits would trigger them?

(1) What does plan and investment contract (if any) say about annuity purchase? I.e., is the purchase contractual? What have participants been told say in the SPD. Some plans allow the participant to elect for an annuity to be purchased. It would seem if the public expectation has been established that annuities will be purchased, then it would appear a burn to get the AFTAP to 80% is in order.

(2) If no expectations established, then if would seem a burn is not required because we are talking about an investment decision. Otherwise, the scope of plans to which the deemed election would apply would be widened since likely every plan conceivably could purchase an annuity as an investment decision.

(3) If there is true paranoia about this issue, then the Plan/Trust could be amended to preclude the purchase of annuities. Of course, then, if you terminated the plan, the plan would have to be amended to allow for the purchase.

If (1) does not apply, I'd be inclined not to burn the CB so long as annuities are not purchased in the forthcoming year..

The employer does enter into a contract as an election to purhcase annuities, but from a participant standpoint, they would not know the difference between receiving their benefit from the plan or from an annuity. So i guess (1) does apply, but i'm thinking the situation would be similar to a plan failing a 110% test and an HCE recieving their benefit from the plan rather than from a purchased annuity. Thanks.

Don't want to put words in Andy's mouth, but I think his use of "contractural" was a reference to plan provisions. That is, does the Plan require the purchase of an annuity?

I guess I meant it in a broader scope but for the most part, David put the right words in my mouth. I've recalling seeing Insurer's GICs contracts whereby pensions were necessarily provided through annuity purchase. Clearly, this wouldn't fly and the insurance contract would have to be modified or dissolved but until that was done, I suspect the annuity purchase would go on and it would be incumbent to burn the credit balance. Such contracts are rare (at least in non-municipal plans).

DMB's initial post was an excellent example of more government explanation invoking the law of unintended consquences.

Why does the existence of a contractual intra-Plan requirement to purchase annuities bear on this issue? Either the plan does or does not provide for an accelerated payment option.

If the annuity purchase is an investment decision, then Trustees can elect not to make accelerated payments. If it is contractual, then they must (or change the contract). If you argue that both scenarios are effectively the same, than the conclusion would be that the option to purchase an annuity (whether or not an annuity is purchased) means the CB would need to be burned.

The regs. words simply said that the annuity purchase constitutes a prohibited payment. They did not stipulate that the annuity purchase had to result from an employee election.

Anyway, that's my thinking. My opinion. Anyway, you know what "they" say about opinions?

More confusion. Where in the regs does it say that an annuity purchase is a prohibited payment? Notwitstanding the answer, it is a rare plan that has a required annuity purchase/immunization provision.

For the record, purchasing annuities is not in the plan document, but the employer has made a written election pay retirement benefits only by purchasing annuities rather than paying monthly benefits from the plan or by lump sum from the plan.

From the August 31, 2007 proposed reg.,

"Under section 436(d)(5), a ‘‘prohibited payment’’ is (1) any payment, in excessof the monthly amount paid under a single life annuity (plus any social security supplements that are providedunder the plan), to a participant or beneficiary, (2) any payment for the purchase of an irrevocable commitment from an insurer to pay benefits (anannuity contract), . . ."

By golly, a reference to the Code soooooooo beats a reference to a regulation. So, whatever Andy says, I agree with!

Before you go out too far on a limb, it is well known that the last time I was right was in 1955 when I bet the Dogers would beat the Yankees in the WS. And that was an accident - I meant to bet the Yankees would beat the Dodgers.