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Are actuarial increases beyone NRA required under a frozen DB plan


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An employer sponsors a defined benefit plan under which the plan's benefit

accruals are frozen. The plan provisions do not allow an actively employed

participant who has attained normal retirement age (age 65) to commence

receiving benefits until such participant has terminated employment.

Furthermore, under the current plan provisions, the participant’s normal

retirement benefit payable upon late retirement is not actuarially

increased. Accordingly, the plan’s lack of an actuarial increase provision

for participants beyond normal retirement age in conjunction with the fact

the benefit accruals are frozen results in the decrease of the value of a

participant’s benefit as they continue employment beyond normal retirement

age.

An employee who is a participant under the plan has attained age 65 and is

continuing to work beyond age 65. Under the current plan provisions, this

participant cannot commence receiving benefits and will not receive an

actuarial increase. Are the current plan provisions in violation of any

IRS rules and regulations?

Must the plan be amended to either (1) allow for actuarial increases for

participants beyond normal retirement age or (2) allow actively employed

participants who have attained the plan’s normal retirement age to commence

receiving benefits from the plan prior to actual termination of employment?

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Since the Plan did not offer the greater of the AB and actuarial increase of NRB pre-freeze, it was incumbent upon the Plan Administrator to issue affected participants a suspension of benefits notice if they continued to work beyond NRD. It would appear that if the Plan offers this notice, then no actuarial increase would continue to be in order. That is until the participant reached 70 1/2. In short, there appears to be no evidence that these rules are changed simply because plan benefits are frozen.

The issue, of course, is that the suspension provision is sometimes not administered in a timely fashion, if at all. And then you've got another problem.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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AndyH, that's exactly how one of my clients referred to the notice !!!

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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Since the Plan did not offer the greater of the AB and actuarial increase of NRB pre-freeze, it was incumbent upon the Plan Administrator to issue affected participants a suspension of benefits notice if they continued to work beyond NRD. It would appear that if the Plan offers this notice, then no actuarial increase would continue to be in order. That is until the participant reached 70 1/2. In short, there appears to be no evidence that these rules are changed simply because plan benefits are frozen.

The issue, of course, is that the suspension provision is sometimes not administered in a timely fashion, if at all. And then you've got another problem.

So what happens if the suspension of benefits notice was not issued in a timely manner? In that case, would the plan need to be amended in order to allow for actuarial increases?

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Since the Plan did not offer the greater of the AB and actuarial increase of NRB pre-freeze, it was incumbent upon the Plan Administrator to issue affected participants a suspension of benefits notice if they continued to work beyond NRD. It would appear that if the Plan offers this notice, then no actuarial increase would continue to be in order. That is until the participant reached 70 1/2. In short, there appears to be no evidence that these rules are changed simply because plan benefits are frozen.

The issue, of course, is that the suspension provision is sometimes not administered in a timely fashion, if at all. And then you've got another problem.

So what happens if the suspension of benefits notice was not issued in a timely manner? In that case, would the plan need to be amended in order to allow for actuarial increases?

That would be one approach. Another would be to provide the interest thru the date the notice is issued and hold your nose. Better still, amend it to say that this is what occurs if the notice is not issued timely. There could be issues with this but it is an option.

Third, you could amend the plan to allow in service distributions but you would still need to rectify the past.

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Was aware of a case years ago where even though the client had been provided with the notice and advised to issue it, the best laid plans of mice and men oft go astray. The plan administrator's resolution was to issue the notice and grant an actuarial increase from NRD to the date the notice was issued. The Plan was not amended to stipulate this increase since the plan's legal counsel was comfortable not amending it for this one-time occurrence.

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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So, in essence, the Plan Administrator corrected an insignificant operational violation under SCP

No, under SOB!

The material provided and the opinions expressed in this post are for general informational purposes only and should not be used or relied upon as the basis for any action or inaction. You should obtain appropriate tax, legal, or other professional advice.

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