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Gary

Reduction of benefit payable at age 65 (NRA)?

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Gary    1

A Plan provides that NRA is 65. For those working to age 65, they are paid their full accrued benefit. For those retiring prior to age 65, their benefit is reduced 5% per year from SSRA. So for eg. a person has a SSRA of 66, terminates at 61 w/ a vested benefit right. The Plan paid the lump sum based on his age 65 normal ret. benefit. And this benefit was reduced by 5% even though it was as of NR date. Can age 65 NRA base (not excess portions) benefits be reduced at NRA? Especially where it is done for certain participants and not others.

Any thoughts on this?

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Guest Laura   
Guest Laura

under 417(e), it is not required that the present value determination of a benefit include subsidies. Assume, in the example you gave, that the age 65 normal retirement benefit is $100 per month, the age 61 actuarial equivalent benefit is $75 per month, and the age 61 subsidized benefit is $80 per month (determined by reference to 5% reduction from age 66). the participant would be entitled to the present value (determined in accordance with GATT) of the age 65 $100 per month benefit. Presumably, the present value of the age 61 subsidized benefit would be a greater amount. the employee in this example is NOT entitled to the greater subsidized amount.

it sounds like, in your example, the age 65 benefit was artificially contorted into an age 66 benefit. that won't work in any event.

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Gary    1

I think you have it laura. Yes the age 65 benefit was reduced by 5% because it was one year prior to SSRA. Can a benefit at NRA be reduced? And this was done for those retiring prior to NRA, not for those who work to NRA. ANy thoughts on this?

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Guest Laura   
Guest Laura

i'm not certain but i don't think that works because the nra under the plan would be age 66 for certain individuals, in violation of 401(a). i would take a look at the legislative history to the SBJPA provision that amended the uniformity rules for early retirement subsidies. i don't have that handy but that's where i would look if i were you.

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Gary    1

Laura, do you know what section of 401(a) is violated?

Of course, plans can have varying reductions w/r/t the maximum excess portion of an excess plan. That is based on the SSRA. For eg. the max. excess is .75 for a person w/ a SSRA of 65 and it is .65 for a person with a SSRA of 67. So I was wondering if they could do this for the entire benefit, but I don't know where this authority exists. I will look at SBJPA. Although I would have thought this was a relevant issue prior to SBJPA.

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Guest Laura   
Guest Laura

look at 411(a)(8)(definition of normal retirement age), and then look at 411(a)(7)(definition of accrued benefit). i don't think you can peg a member's normal retirement benefit as his age 66 benefit.

SBJPA made a change to the application of 401(a)(4) to plans that apply subsidies relative to ssra. i thought the legislative history might have contemplated the accrual issue under 411.

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