Rollover Earnings

L1: Rollover EarningsHello,
I plan to rollover my qualified company plan into an IRA when I retire at the end of the year. I’m told that this process can take up to 3 months. Can anyone enlighten me on what happens to the earnings during this transistion time?
Thanks2005-12-15 09:23, By: Jim, IP: [166.87.255.133]

L2: Rollover EarningsGood morning Jim:
Depending on the distribution rules of your company plan, it could take a while to move the money to your Rollover IRA. This delay is usually caused by the funding cycle of your employer. If they only fund on a quarterly basis and you apply for the rollover right after that funding, then you can see the reason for the delay. However, while the money is still in the plan it continues to earn.
The actual time in transit to your new IRA (and the time you don’t have any earnings) once the funds are released should only be mailing time. They may send the check directly to the new custodian or they may send the check to you but made payable to your new custodian. If you get the check then it depends how fast you can get it deposited into your new Rollover IRA. Don’t panic if you get the check that’s payable to the new custodian because you can’t cash it and thereby don’t have constructive receipt of the funds.
Hope this helps … and no, I’m not writing notes to myself.
Jim2005-12-15 09:52, By: Jim, IP: [70.184.1.35]

L2: Rollover EarningsJim,
My new nickname is Bear. I received a lump sum figure based on my last day of employment and my first day of retirement. I assume that this is an estimate and the actual figure will be higher when the money isfinally transferred. Thanks for explaining the process.2005-12-16 11:11, By: Bear, IP: [166.87.255.131]

L2: Rollover EarningsGood morning Bear:
From your additional information I must assume your “Qualified Company Plan” is a Defined Benefit (DB) Plan and not a 401(k). Using this assumption, your answer is a little more complicated. Contact your HR department for definitive answers to your question. But let me add some thoughts based on my experience dealing with rolling over my clients’ DB Plans.
One problem with DB Plans is the use of an interest assumption to determine payout benefits and lump sum amounts. The interest assumption is usually good for one (1) calendar year. If you are going to leave the plan as is and take monthly income, then the amount you get is based on the account value on a “valuation date” and the interest assumption for the year. Similarly, if you are going to take a lump sum distribution to a Rollover IRA, there is an account value on the valuation date and the interest assumption. The account value is pretty straight forward, but the interest rate is the trick.
In determining the lump sum distribution, a rising interest rate generally means a smaller amount going to your IRA. The reasoning is that if interest rates are going up, as they have been for quite some time now, it takes a smaller lump sum with the higher interest rate to provide you with your “Defined Benefit” on a monthly basis. Conversely, if interest rates fall from one year to the next, then it takes a larger lump sum to provide the same benefit. And since companies generally change the interest rate effective with the new calendar year, if rates rise then the lump sum falls.
Hope this helps the understanding eventhough it may not be the information you wanted to hear right now at this time of year. Talk with HR to find out what will happen in your particular situation.
Jim2005-12-19 09:01, By: Jim, IP: [70.184.1.35]

L2: Rollover EarningsJim,
You’re assumptions are correct.I would like to add the following comment to this forum. I my case the interest rate has been frozen at an all time low for the purpose of not losing experiencedemployees in mass just before the next rate hike. The company pays out the difference. I hope other companies consider this option.2005-12-19 21:49, By: Bear, IP: [166.87.255.133]

L2: Rollover EarningsWOW! You have one generous company. Take the money and run while you can!
Jim2005-12-20 09:04, By: Jim, IP: [70.184.1.35]