COLAs for DB Lump Sum Distributions (Posted July 22, 2002) Technical Tip 77: The following question and answer were from the IRS Q&A Session at the 2000 ASPPA Annual Conference: The DB plan has provided cost-of-living adjustments to a retiree who was receiving an annuity of 100% of his compensation at his retirement date. The plan is being terminated and lump sum distributions are being offered. Is the lump sum maximum based on the current annuity including the COLAs since retirement? Response: Yes. Comment by the RLR&C ERISA Attorneys: Regs. Section 1.415-5(b) states that a plan may provide an annual COLA increase in benefits to a participant who has terminated employment and whose 415 limit is governed by the 100% of pay limitation under Code Section 415(b)(1)(B). The COLA adjustment is the same as the annual adjustment to the dollar limit under Code Section 415(b)(1)(A). The COLA is a part of the participant's monthly benefit. Therefore, when lump sums are offered, the participant must receive the lump sum actuarial equivalent of the benefit to which he or she was entitled at termination of employment increased to the current date in accordance with increases in the cost of living since termination date.The participant is entitled to the COLA increases whether or not benefit payments have commenced. View all Tips © 2012 Reish Luftman Reicher & Cohen, a Professional Corporation Important notice: Answers are provided as general guidance on the subjects covered in the question and are not provided as legal advice to the questioner's situation. Any legal issues should be reviewed by your legal counsel to apply the law to the particular facts of your situation.