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Is 401(a)(9) late retirement actuarial increase required to start at 4/1 after 70 1/2 for vested participant who hasn't attained NRA by then?


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Would like to hear opinions on the following question: 

Plan's eligibility provision requires one year of service, vesting is 5-year cliff and Plan's normal retirement age is later of age 65 or the fifth anniversary of plan participation. NRD is the first of the month on or after NRA. 

Participant is hired at age 65, hits the one year of participation requirement at 66 (in the following year). He attains 5 years of vesting service in the year he hits age 70 so he became fully vested a few months before he hit his NRD (since he won't hit 5 years of participation until the beginning of the next plan year when he hits age 71).  He then continues to work beyond NRD -  working full time until he retires at a late retirement date, age 73.     (Plan provides for suspension of benefits in cases of delayed retirement, but this may not be relevant here since the participant's NRD falls later than 4/1 after the end of the calendar year he attains 70 1/2). 

When the participant eventually terminates (at age 73), is the actuarial increase starting date: 

(a) 4/1 after the end of the calendar year he attained age 70 1/2?

 or

(b) NRD (i.e., the first day of the plan year in which the fifth anniversary of his participation occurred)?  

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I would say NRD since the participant wasn't entitled to any retirement benefits as of their MRD.    

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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Thanks Effen.

Yes, Mike Preston, 5-year cliff.  

In case I wasn't clear, they are vested as of 4/1 after the year they attain 70 1/2, but just haven't hit their NRD yet. 

In case you think it's relevant, the plan in question offers vested participants in-service commencement as of 4/1 after the end of the year they age 70 1/2 in an unreduced amount, but does not require non-5% owners to commence as of that date. This participant elected not to start in-service.  

 

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