I have a plan doc saying that the AE factors are the same as 417(e).

For calculating a termination benefit for a participant, I would use the First Segment Rate to get the Joint & Survivor Annuity Factors.

Am I correct or missing out on something??

Thanks in advance.

IMHO, a definition that refers to 417e means you must use all 3 segment rates.
This is a recipe for confusion and error. I suggest amending the plan to make sure only one rate (maybe the pre-PPA rate) is used.

I agree with David, the easiest thing would be to have the plan amended. Simply referencing 417(e) just doesn't really work in a post PPA world.

When amending you need to be careful of 411(d)(6) cutbacks. We had to change several of our plans that referenced 417(e). We chose to use the 417(e) applicable mortality and the lowest of the three segment rates. That should result in higher optional forms of payment and avoid potential 411(d)(6) issues.

Why is the three-tiered rate structure more difficult than a single rate structure? Nobody does actuarial equivalence calculations by hand, so having a computer program develop the factors should be somewhat similar, shouldn't it?

Is there any problem in keeping the plan document as is for the actuarial equivalence part (it simply refers to 417(e)) and then we just amend the 417(e) to include the post-ppa segment rates.

Your PPA amendment will require that you follow the PPA changes in the 417(e) assumptions. You should consider the choice of your actuarial equivalence assumptions for optional forms other than 417(e) required payments.

If you are selecting the 417(e) rates for conversion of J&S benefits or period certain for example, then you will vary the optional rates every time you change the rates for a new stability period. Some plans do this monthly, although most use an annual stability period. This makes the optional form elections more confusing, since you have to worry that a participant might change their annuity commencement date and change the factors.

Also, the 417(e) rates are subject to a phase-in period. Are you using the phase-in rates as well?

I agree with your point of having a more clearly defined actuarial equivalence assumption in the plan doc ; but say the client wants to stick with the actuarial equivalence assumptions referring to 417(e), then is there any clear advantage (other than ease of calculation) of

1) having to use three 417(e) segment rates in actuarial equivalence vs
2) using the lowest 417(e) segment rate in actuarial equivalence

The client wants to avoid putting in that extra amendment for use of the lowest 417(e) segment rate.


All help appreciated.