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Alonzo

Early Retirement

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You need to look at the plan's early retirement provision. If the employee, as of the date he leaves the employer, has the years of service that would entitle him to a benefit (if he were age 55), then he will be entitled to a benefit at age 55.

The amount of the benefit at age 55 may or may not be the amount shown on the statement. Check the caveats on the statement. Is the stement truly showing the participant's accrued benefit? Or is it showing a projected accrued benefit?

Also, note that early retirement benefits are frequently "subsidized" for employees who remain employed until early retirement age (55 in your case). If the participant is entitled to a benefit at age 52, it may be reduced more dramatically than is shown on the statement.

Geta copy of your client's SPD. Some of the answers should be there.

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Guest HD WILLIAMS

I apologize for not knowing anything about DB plans. This may be a stupid question, but here goes. We have a client who is 52. He wants to retire from his current employer, who has a DB plan. If he goes to work somewhere else, or becomes self-employed, can he begin taking distributions from the plan when he turns 55 without penalty? Also, he is wondering about the amount he will receive. His statement shows his distribution amount at age 65, then the amount decreases for each year until age 55. He is thinking if he retires at age 52, he will get the amount his statement now shows for retirement at age 55. I don't think this is correct. Wouldn't it be less? Or is it according to what the plan document says? Any help and guidance would be greatly appreciated. Thanks!!

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HD, Some basics may help you.

A DB plan defines an "accrued benefit" at any point in time using some formula, usually taking into account the employee's compensation (or some average thereof) and service.

Note that compensation and service are each defined in the Plan so don't just assume; for example, service might be defined as a plan year in which the EE works at least 1000 hours; compensation may be defined as all comp or may omit overtime, bonuses, etc. Read the documentation carefully. (That is, start with the definitions.)

Now that the accrued benefit is defined, note that it is usually payable at Normal Retirement Date (also defined), which is very often age 65. For ex. an EE age 50 with 20 years of service may have an accrued benefit of $500 per month, but the plan will not commence that $500 until age 65. Then the plan may permit a reduced benefit to commence earlier, usually some percentage of the $500. The reduction is to account for (approx.) the longer time period that the benefit will be paid. Remember that a DB accrued benefit is usually an amount that is paid for the life of the retiree; one of the attractions of a DB benefit is that the EE cannot outlive the money, which is not the case in a DC plan.

Hope this background is not too verbose for you. If you have more questions, just post.

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