Pensions: Lump Sum Distributions

Please see information below pertaining to the above referenced topic from Theresa Inman, CWA/Avaya Employee Resource Center.

In Unity,
Ralph Maly
Vice President - C&T

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Avaya

Pensions: Lump Sum Distributions

Participants who retire on or after January 1, 2007 will have the option of taking their pension in a lump sum.  The lump sum will be calculated in accordance with Internal Revenue Code (IRC) Regulation 1.417(e) – 1(d) 3, where the interest rate is set for the Plan Year based on the 30-year Treasury bond rate and the mortality tables are set in accordance with IRS Revenue Ruling 2001-62.  The 30-year Treasury bond rate for August of the proceeding year will be used and remain applicable for the following 12-month Plan Year.  The lump sum amount will be calculated based on the present value of the participant’s Normal Age benefit. 

If the IRC 417(e) interest rate, IRC 417(e) mortality table and/or other practices are changed by future regulatory and/or legislative changes, the above assumptions and practices will change, and the Pension Plan will be amended accordingly.

Changes were made for 2008 by the IRS and the PPA.

Attached is a PPA Interest Rate document regarding the ruling that pertains to the mortality table used when calculating single lump sum distribution as a result of the amendment of section 417(e)(3) to the Code of the Pension Protection Act. Rev. Rul. 2001-62 modified.

In 2007 it was a simple calculation to determine lump sum value for distribution.    

We were able to view a chart with percentages that was based on a percentage rate based on factors. 

With the new changes in 2008 it is a blended rate based on interest rates, mortality and DOB + Interest Rate.

Our plan is based on August interest rates, however the 3 rates apply and depend on age and benefit commencement date of participant and are combined to get final value.  

All 3 rates are higher than the 2007 rate of 5.00% the lump sums will be lower for 2008.  

If a participant is pension eligible and would like an estimated lump sum value you can first look on the MY TOTAL REWARDS website,  By end of April the site will be updated for the quarter and will have estimated lump sum values.

A factor table is being built and should be finalized also by end of April.  The Employee Resource Center will have that table and be able to help calculate lump sum estimates.