A plan allows for early commencement for terminated vested participants.

The terminated employee can receive his pension as an annuity upon termination or as early as age 55, if he does not commence at termination.

The plan also provides for lump sum payments upon termination.

This is a pet peeve of mine.

In computing the lump sum, the company determines the factor as if the pension is assumed to be payable at age 65.

My feeling (playing devil's advocate) is that why not pay a lump sum that is the greatest of the lump sum determined as either:

1) payable at age 65
2) payable immediately, with applying ERF factor
3) payable at any age from 55 to 65

In other words the lump sum determined as payable at age 55 with an ERF of .48 produces a larger lump sum than the amount determined as payable at 65.

What are your thoughts w/r to this more aggressive, but seemingly reasonable approach?

PS I should say early commencement factor, since it would not be an early retirement factor.

Take care
Gary

I think It all comes back to your Plan Document. I see nothing wrong with your approach, but I don't think it's something that you, as the actuary, can choose to do based on personal preference.

Most documents describe the lump sum as the value of the Accrued Benefit payable at Normal Retirement Date, but I have seen some that determine it based on the value of the benefit at the earliest possible commencement date.

I think you need to be careful not to let your "pet peeves" cause your clients to incure liabilities beyond what the Plan Document allows.

If they find your doing something beyond what the document requires, they will most likely come after you for restoration of the assets.

I agree with Keith, with some more comments.

ERISA states that a VT must be able to "age into" the early commencement date if he has met the service requirement. No problem. However, there is no requirement that the early retirement reduction factor has to be the same for this person as for the active employee who retires at an ER date. In fact, it makes sense that the Plan/sponsor does not "owe" the VT person the same early retirement subsidy that is given to those employees who retire from active service.

However, the plan document is what governs as to the definition of the early reduction factors. If there is ambiguity in the document, then two choices seem obvious:
1. amend the plan to remove any ambiguity, or
2. establish a (written) procedure by the administrative committee to remove the ambiguity.