Jump to content

PS with NRA 60, but has Pension Assets


Belgarath
 Share

Recommended Posts

I just came upon a PS Plan with a NRA of 60 - normally fine in a PS plan, BUT, this was formerly a MP plan that was amended and restated to a PS plan. Since there are pension assets, the NRA of 62 isn't allowable in this case (it isn't an industry that can reasonably demonstrate or argue that NRA of 60 is normal or representative of the industry)

So here's the conundrum - easy to amend to 62, but it seems to me that this is an impermissible cutback. What does one do in this situation? If you leave it alone, it is noncompliant and you can't rely on the pre-approved language. If you amend, it is a prohibited cutback. Do you have to submit to IRS under VCP as a document failure? And even if you do, what "fix" can reasonably be proposed?

Should have known better than to review a plan on Friday the 13th! :)

Link to comment
Share on other sites

You may want to go back to the prior document. The NRA change was part of the 2007 interim amendment from our document provider at the time. I don't remember if the due date was 2007 or 2008 to avoid cutback issues for the change. Our interim amendment was adopted at the document sponsor level, but the default provision did not change the NRA if it was under age 62. If the NRA was changed in 2007/2008 and the restatement put back in the old NRA, you might be able to convince the IRS there was a scrivener's error in the restatement. It's a long shot, but it would be worth a look.

Link to comment
Share on other sites

Does the plan allow for in-service distribution at NRA? The only 411(d)(6) relief I see in the final regs published 5/22/2007 was for timely removing the availability of in-service distributions at an NRA prior to age 62. There was a limited time period to make the change. Any other changes had to satisfy 411(d)(6).

If they did not adopt a 2007/2008 interim amendment and it was not adopted for them at the document sponsor level, they are a non-amender and I'd suggest VCP. If the 2007/2008 interim amendment was adopted for them, but it was missing a provision to correct their NRA, I think you have a plan document failure with that interim amendment. We are well beyond the extended remedial amendment period for that change under Rev. Proc. 2007-44 section 5.03, so I think it would need to be corrected under VCP.

Link to comment
Share on other sites

Yeah, and since it is a cutback, my solution under VCP (in addition to changing retirement age to 62) would be to amend the plan to add an early retirement provision at age 60, and allow distribution at age 60 of all accounts EXCEPT for the pension accounts. That way everyone can still get distributions at the same time (age 60) that they could before.

Sigh...

Link to comment
Share on other sites

Yeah, and since it is a cutback, my solution under VCP (in addition to changing retirement age to 62) would be to amend the plan to add an early retirement provision at age 60, and allow distribution at age 60 of all accounts EXCEPT for the pension accounts. That way everyone can still get distributions at the same time (age 60) that they could before.

Sigh...

But can they do so without a bona fide separation from service?

The problem arises primarily when distributions are permitted on or after the low NRA without the participant having to separate. The IRS restrictions on early NRAs are there to limit in-service distributions.

I don't think the IRS has much objection to permitting earlier distributions to separated participants. You don't see any limitations on how early Early Retirement can be, but to take an Early Retirement benefit, the participant must have separated from service. If the plan does not allow distributions to active employees, even those who have attained NRA, would there be a cutback if NRA was pushed up to 62 but full vesting was granted at 60 (without regard to service) and anyone who terminated on or after age 60 could receive a distribution?

Always check with your actuary first!

Link to comment
Share on other sites

Not sure I understand what you are getting at? I'm talking about allowing in-service distribution at age 60 for all accounts other than pension funds - no problem with this. The ERD of 60 is simply to make them 100% vested (which everyone would have been under the age 60 NRD) in order to put everyone in the same position they would have been before, other than distributions of Pension funds.

So although the ERD of 60 coincides with the age 60 in-service provision, it isn't the ERD that is the in-service distributable event - it is the age 60 provision.

Link to comment
Share on other sites

My point was that if in-service distributions were not allowed before at age 60, changing the normal retirement age to 62 and setting up an early retirement provision granting full vesting (but not allowing in-service distributions) might have been a change that would not have represented a cutback. But apparently, in-service distributions were allowed at age 60 so that wouldn't work.

Always check with your actuary first!

Link to comment
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
 Share

×
×
  • Create New...