Hard freeze, no further accruals, but late retirement "adjustments"?

[Belgarath]

Suppose you have a DB plan that institutes a hard freeze - no further accruals after, say, 1/1/2015.

Does this negate required late retirement "adjustments" to the benefit accrued on 1/1/2015? In other words, your Normal Retirement Benefit as of 1/1/2015 (frozen) is $1,000 per month, beginning at age 65. No further accruals. But there is (or was) an actuarial adjustment of (pick a number, I have no idea - say 0.5% per month) for every month you continue to work past NRD.

Does the hard freeze also negate that adjustment, or is the adjustment still required, even though there are no additional "accruals" for anyone?

Thanks!

[Andy the Actuary]

What sayeth the plan document? The actuarial increase is design. Alternatively, a plan is only required to provide an actuarial increase if the PA does not give the suspension of benefits notice. That said, if the plan does actuarially increase benefits, then the frozen benefit would be increased as well to avoid an unpermissable forfeiture.

[Belgarath]

Thanks. For some reason (not being a DB person) I thought that plans were required to increase the monthly payment for late retirement, to reflect the shorter period of receiving benefits. Apparently that is not the case, and I appreciate your response.

[AndyH]

Just to elaborate, generally an actuarial increase is required unless the plan provides for a SOB notice AND the notice is actually issued timely, which is rare.

Except after 70 1/2 at which time the increase is required regardless of the SOB notice.

The increase can be offset by payments received if the plan so states.

[My 2 cents]

1. What does the plan say? As noted by others above, it depends on whether the plan says suspension notices must be provided and that actuarial increases do not generally apply. Remember - if the plan says to give suspension notices and they are not given out, that is an operational failure!

2. Please be aware that an actuarial increase for deferred retirement is, under no circumstances, considered an accrual. So freezing a plan cannot shut off the application of actuarial increases (as provided under the plan) for deferred commencement of benefits after NRA.

[Belgarath]

Thank you all. There actually is no plan - this is indeed a hypothetical question that came up in conversation, so I appreciate the responses and information!

Although, I have found that most of the "hypothetical" issues that come up in conversation eventually turn out to be based on something real - albeit with substantially different facts than first discussed...

[Effen]

Also, even though it is a hypothetical, suspensions are only permitted if the participant is in "suspendable service" which generally means he is still actively employed, therefore, you cannot suspend the benefit for terminated vested participants whether or not you issued a SOB.

[My 2 cents]

Also, even though it is a hypothetical, suspensions are only permitted if the participant is in "suspendable service" which generally means he is still actively employed, therefore, you cannot suspend the benefit for terminated vested participants whether or not you issued a SOB.

Agreed! Under any qualified defined benefit plan, if a vested terminated participant reaches NRA, only one of three things can happen:

1. Start payments at once.

2. When payments start later, issue back payments from NRA

3. When payments start later, actuarially increase the amount payable from NRA.

The burden is not on the participants to come in (although doing so is helpful), and failure to file for them cannot cost the participant post-NRA amounts. I remember seeing plans that specified that nothing was payable between NRA and the participant making a benefit claim, but that is in flat violation of ERISA.

[Andy the Actuary]

One Plan I work is sponsored by an organization with constant turnover of HR and has difficulty knowing their anus from their ulna. They are forever failing to start TVs at 65 no matter how much tickling. We amended the Plan to incorporate a retroactive annuity start date so at least once they started, it was started in consonnance with the Plan.