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Encouraging DVs past NRD to commence their pension


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We have a non-trivial amount of deferred vested participants who are well past their NRD. The terms of the plan technically require commencement at NRD (at least as has been explained to me, but that's not really the issue at hand).

Ignoring any ramifications of RMDs, have you seen any creative ways to encourage these participants to begin their pension and move into pay status? Letters reminding them of their pension, mailing unsolicited election kits, something else?

This is attractive from a potential annuitization/termination perspective because deferred lives are more costly to place with an insurance carrier than an inpay life. We have made multiple lump sum window offerings without much luck and we have good addresses for substantially all of them.

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If the plan terms require commencement at NRD, that truly is the issue at hand. The plan should (1) be sending benefit commencement paperwork to participants 3-6 months in advance of their NRD and (2) if completed forms are not received by NRD (also the ASD) then they should be commenced in the normal form.

Typically plans also allow deferral to RBD, some requiring a written election, others making that the default election if an affirmative election to commence is not made. You need to verify plan provisions and follow them, otherwise you have an operational defect - and DOL is becoming very cognizant of this issue of plans not commencing deferred participants timely at NRD. If deferral is the default election then you follow the above steps with respect to the RBD rather than NRD.

There is no enticing needed - you send forms with a due date and explicitly tell them if not returned with a valid election by X date then they will automatically be commenced as of Y date in the plans normal form Z, and then you follow through.

If participants are missing, that's a different story, but if benefits are payable under the terms of the plan you are not held hostage by unresponsive participants.

Kenneth M. Prell, CEBS, ERPA

Vice President, BPAS Actuarial & Pension Services

kprell@bpas.com

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Agreed - most defined benefit plans have provisions that say that in the absence of an election to the contrary (with appropriate spousal consent), the benefit will be paid as the plan's QJSA.  That language supports beginning the payments without participant consent as of the date that payments are supposed to start.  Give them their options and if they don't submit an election, force them to take a QJSA (granted, easier said than done).  I don't know how defined contribution plans handle this issue.

Of course, that may not work as well if the participant is missing.  It also requires knowledge of the spouse's existence and date of birth. 

Always check with your actuary first!

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