Pt. 4050, App. A
Appendix A to Part 4050
—Examples of Designated Benefit Determinations for Missing Participants Under § 4050.5
in Plans With Deemed Distribution Dates on and After August 17, 1998
The calculation of the designated benefit under § 4050.5
is illustrated by the following examples.
Plan A provides that any participant whose benefit has a value at distribution of $3,500 or less will be paid a lump sum, and that no other lump sums will be paid. P, Q, and R are missing participants.
(1) As of the deemed distribution date, the value of P's benefit is $3,000 under plan A's assumptions. Under § 4050.5(a)(1)
, the plan administrator pays the PBGC $3,000 as P's designated benefit.
(2) As of the deemed distribution date, the value of Q's benefit is $5,200 under plan A's assumptions and $4,700 under the missing participant lump sum assumptions. Under § 4050.5(a)(2)
, the plan administrator pays the PBGC $4,700 as Q's designated benefit.
(3) As of the deemed distribution date, the value of R's benefit is $4,900 under plan A's assumptions, $3,600 under the missing participant lump sum assumptions, and $4,950 under the missing participant annuity assumptions. Under § 4050.5(a)(3)
, the plan administrator pays the PBGC $4,950 as R's designated benefit.
Plan B provides for a normal retirement age of 65 and permits early commencement of benefits at any age between 60 and 65, with benefits reduced by 5 percent for each year before age 65 that the benefit begins. The qualified joint and 50 percent survivor annuity payable under the terms of the plan requires in all cases a 16 percent reduction in the benefit otherwise payable. The plan does not provide for elective lump sums.
(1) M is a missing participant who separated from service under plan B with a deferred vested benefit. M is age 50 at the deemed distribution date, and has a normal retirement benefit of $1,000 per month payable at age 65 in the form of a single life annuity. M's benefit as of the deemed distribution date has a value greater than $5,000 using either plan assumptions or the missing participant lump sum assumptions. Accordingly, M's designated benefit is to be determined under § 4050.5(a)(3)
(2) For purposes of determining M's designated benefit, M is assumed to be married to a spouse who is also age 50 on the deemed distribution date. M's monthly benefit in the form of the qualified joint and survivor annuity under the plan varies from $840 at age 65 (the normal retirement age) ($1,000 × (1-.16)) to $630 at age 60 (the earliest retirement age) ($1,000 × (1-5 × (.05)) × (1-.16)).
(3) Under § 4050.5(a)(3)
, M's benefit is to be valued using the missing participant annuity assumptions. The select and ultimate interest rates on Plan B's deemed distribution date are 7.50 percent for the first 20 years and 5.75 percent thereafter. Using these rates and the blended mortality table described in paragraph (2) of the definition of “missing participant annuity assumptions” in § 4050.2
, the plan administrator determines that the benefit commencing at age 60 is the most valuable benefit (i.e.,
the benefit at age 60 is more valuable than the benefit at ages 61, 62, 63, 64 or 65). The present value as of the deemed distribution date of each dollar of annual benefit (payable monthly as a joint and 50 percent survivor annuity) is $5.4307 if the benefit begins at age 60. (Because a new spouse may succeed to the survivor benefit, the mortality of the spouse during the deferral period is ignored.) Thus, without adjustment (loading) for expenses, the value of the benefit beginning at age 60 is $41,056 (12 × $630 × 5.4307). The designated benefit is equal to this value plus an expense adjustment of $300, or a total of $41,356.