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Old 06-17-2019, 09:14 AM
bigdork bigdork is offline
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Default Combining a J&S with a lump sum death benefit

What litmus test do you use to determine how much of a lump sum death benefit, payable to the beneficiary (or estate) when the member dies, is allowable when member selects a joint and survivor option within a DB plan? Are there regulatory or best practice considerations? If so, specifically which ones should be considered?

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Old 06-17-2019, 10:22 AM
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Why are you paying a LS death benefit if a J&S annuity is being paid?
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Old 06-17-2019, 04:58 PM
bigdork bigdork is offline
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As long as actuarial equivalence at retirement is respected, why can't you tack on this additional benefit? We can and we do pay death benefits in addition to survivor benefits. My question is what is the most appropriate way to determine the largest lump sum payable? We have our methods, but I'm curious about what others do.
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Old 06-17-2019, 05:57 PM
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Quote:
Originally Posted by bigdork View Post
As long as actuarial equivalence at retirement is respected, why can't you tack on this additional benefit? We can and we do pay death benefits in addition to survivor benefits. My question is what is the most appropriate way to determine the largest lump sum payable? We have our methods, but I'm curious about what others do.
I am slightly confused. Are you asking, is there a maximum LS allowable by law if a plan were to offer an optional payment form that included both a J&S option and a LS payable to the spouse upon the death of the member?

I have seen quite a few plans in both the public and private sector and don't think I have ever seen that type of optional benefit. I have seen minimal retiree death benefits offered in an attempt to cover funeral expenses, but never that required the member pay for them out of their own benefit. It has been a while since I have had to worry about QJSA & QPSA rules so am not all that familiar with them any longer, but given the plan could offer a 100% LS benefit payment option at retirement I don't see why the value would necessarily be anything less than 100% of the value of the benefit, as long as the J&S benefits were properly structured and met the RMD requirements.

Now that I actually think about it, it seems like the RMD requirements are likely to be the factor that restricts how small the annuity payments can legally be. From a practical perspective, the administrative burden of paying small benefits should also restrict how small a plan sponsor would be willing to allow the annuity payments.
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Old 06-17-2019, 07:07 PM
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I believe the APV of the lump sum cannot be more than 50% of the value of the reserve at retirement, but I think there are other things to consider. If I'm not mistaken, which I may be, you cannot shift too much of the value of the benefit to the LSDB for tax reasons - the man wants his money sort of thing. The question remains - how does one determine the largest available lump sum death benefit with a J&S benefit?
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Old 06-17-2019, 08:58 PM
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Quote:
Originally Posted by bigdork View Post
I believe the APV of the lump sum cannot be more than 50% of the value of the reserve at retirement, but I think there are other things to consider. If I'm not mistaken, which I may be, you cannot shift too much of the value of the benefit to the LSDB for tax reasons - the man wants his money sort of thing. The question remains - how does one determine the largest available lump sum death benefit with a J&S benefit?
What does "reserve" mean in the context of a J&S benefit?
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Old 06-17-2019, 09:51 PM
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Quote:
Originally Posted by bigdork View Post
I believe the APV of the lump sum cannot be more than 50% of the value of the reserve at retirement, but I think there are other things to consider. If I'm not mistaken, which I may be, you cannot shift too much of the value of the benefit to the LSDB for tax reasons - the man wants his money sort of thing. The question remains - how does one determine the largest available lump sum death benefit with a J&S benefit?
Is this a US plan? Maybe you could provide some actual details instead of being so cryptic because 100% LS options are allowable for US plans and the optional payment form you are describing is not common in the US. It would be helpful to know what regulatory environment we are talking about.
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Old 06-18-2019, 08:05 AM
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I have seen a couple of plans that offer a J&S where the survivor would get to elect between a continuing annuity or a lump sum upon the death of the original annuitant. The lump sum was calculated based on minimum 417 limits.

In terms of how much it can be, there may be some limits on the percentage of a J&S that can be passed along, depending upon if the joint annuitant is a spouse or not. (if not a spouse and much younger, there are IRS prescribed limits).

The above should not be interpreted as being professional advice, or even correct for that matter.
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