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Gary

Post age 65 accruals

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A plan provides for act increases for late ret.

The plan changes act equiv in 1994, from an interest and mort table to a table of act increases w/ no reference to specific assumptions.

A participant reaches age 65 in 1991 and retires in 1999.

My feeling is that his act increased benefit s/b on old basis to 1994 and then perhaps on new basis (less generous) from 1994. The Plan just uses less generous new basis.

Any thoughts on what is acceptable approach. Perhaps the old basis is only basis that s/b used since his entire age 65 pension was accrued before 1994.

gary

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To quote from the 1998 IRS responses to questions posed by the ABA, which discussed a similar situation:

"Section 411 requires that the benefit received by the employee be the actuarial equivalent of the normal retirement benefit... The IRS does not have precise guidelines on how that is to be accomplished, but the plan's operation must be reasonable."

Make sure that your plan is amended to allow for the approach you adopt.

Note that, if the participant had not been active, 401(a)(14) might require you to make back payments, and 411 would require you to add interest to the back payments.

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When a suspension of benefits notice is not given, at the end of each year after age 65, the employee's benefit is the greater of (1) the accrued benefit at the beginning of year plus the accrual under the regular plan formula (reflecting the additional year of service and increased earnings), and (2) the actuarial equivalent of the beginning of year benefit. (from Dept of Labor regs 1982 or 1984)

In your case, you do this calculation twice to get the benefit at age 67. This (or its actuarial equivalent) is what the employee is entitled to upon retirement at age 67.

Now, if you would like to separate this age-67 benefit into two pieces, the lump sum for the 2 year's worth of missed payments and whatever is left over (as long as the total actuarial value equals the age-67 benefit), you can. You might need a plan amendment to allow for this form of benefit, but as long as the age-67 value is preserved, there would be no violation of the suspension of benefits regulations.

Are the DoL regulations followed in all cases? I doubt it. Also, I believe the calculation each year at the end of the plan year, so instead of doing the calculation at exact ages 66 and 67, it might be at (for example) 65.5, 66.5 and retirement date, depending on the birthday and plan yearend.

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The "greater of the actuarial increase or the accrual" approach advocated by Richard can be found in 411(B)(1)(H)(iii)(II) of the Internal Revenue Code, and Prop Reg. 1.411(B)-2(B)(4)(iii). However, the Regs. note that a "Plan may provide" for this approach. In IRS-ese, this means the language allowing this approach must be in the plan document, before it is utilized.

If this approach isn't in the Plan document now, and utilization of the approach would reduce a persons benefit, you'll violate 411(d)(6) if you slip it into the document.

My experience is the same as Richard's. Suspension of Benefits Notices aren't always distributed, and plan sponsors don't bother with the actuarial increases that should be the result of forgetting.

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