Government Shut Down Affects Lump Sum Payments from Defined Benefit Plans

If your defined benefit plan has a lump sum payment option, the plan document must define the timing for determining the interest rate used in calculating the lump sum.  The interest rate may be fixed for a year, or it may float monthly, or anything in between, depending on how the plan defines it.

The interest rates for determining lump sum payments are published monthly by the IRS. Typically the month’s rates are posted around the 7th to 10th day of the following month.  The rates are posted a little later when a holiday falls at the beginning of a month.  It appears that the rates aren’t posted at all when the government shuts down.  Eventually, these rates will be posted, but in the meantime, it could affect your plan’s payment of lump sums.

If your plan’s definition of the interest rate floats monthly or is otherwise based on rates posted in December, participants may have to wait for a later payout date.  There are some creative options you could employ to get benefits paid now and square up with posted rates at a later date.

If you have questions on if and how this timing affects your plan and the options available, contact Watkins Ross or your actuarial service provider.

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